Financial Report 2017 - Universal Life · Financial Highlights of the Group 2 2017 2016 2017/2016...

Financial Report 2017

This document is

an internal translation into English of

the Greek audited Financial Statements for the year ended 31st December 2017

and of the 2017 Embedded Value Report of

Universal Life Insurance Public Company Limited

Universal Life Insurance Public Company Ltd

Financial Report 2017

Table of Contents

Board of Directors and Executive Management 1

Financial Highlights of the Group 2

Management Report 3

Consolidated Financial Statements

Consolidated Statement of Comprehensive Income 6

Consolidated Income Statement of Life Insurance and Annuity Business 7

Consolidated Income Statement of Accident and Health Insurance Business 8

Consolidated Statement of Financial Position 9

Consolidated Statement of Changes in Equity 10

Consolidated Statement of Cash Flows 11

Summary of Significant Accounting Policies 12

Notes to the Consolidated Financial Statements 24

Embedded Value 55

Board of Directors and Executive Management

1

BOARD OF DIRECTORS

Photos I. Photiades, Ph.D

Chairman

George Georghiou

Vice Chairman

Dr Andreas K. Kritiotis (resigned on 2/2/2018)

Andreas Georghiou

Constantinos Dekatris

Demosthenis Z. Severis

Socrates Solomides

Alexis Ph. Photiades

Pavlos Ph. Photiades

Stavros Christodoulides

Maria Agrotou Iacovidou (appointed on 24/3/2017)

EXECUTIVE MANAGEMENT

Dr Andreas C. Kritiotis (resigned on 2/2/2018)

Managing Director & Chief Executive Officer Kypros Miranthis General Manager and Deputy Chief Executive Officer Andreas Shakallis General Manager of Insurance Operations

COMPANY SECRETARY

Charalambos G. Chomatenos

CHIEF FINANCIAL OFFICER

Xanthos Vrachas (resigned on 25/8/2017)

Pantelis Iacovides (appointed on 28/8/2017)

APPOINTED ACTUARY

Andreas Shakallis (until 24/3/2017)

Rebecca Evangelou (from 24/3/2017)

LEGAL ADVISORS Lellos P. Demetriades Law Office

INDEPENDENT AUDITORS Ernst & Young Cyprus Ltd

REGISTERED OFFICE AND HEAD OFFICE

Universal Tower

85 Dighenis Akritas Avenue

1070 Nicosia

P.O.Box 21270, 1505 Nicosia

Financial Highlights of the Group

2

2017

2016

2017/2016

Increase

€000 €000 %

Gross Premiums 124 017 81 782 51,6

Profit for the year before tax 3 054 1 472 107,5

Profit for the year after tax 1 799 811 121,8

Insurance Contracts Liabilities 287 623 277 709 3,6

Total Assets 388 935 360 245 8,0

Total Equity 33 481 32 815 2,0

Management Report

3

The Board of Directors submits to the shareholders their report together with the audited Consolidated

Financial Statements for the year ended 31 December 2017.

ACTIVITIES Universal Life Insurance Public Company Limited (the “Company”) is the parent company of the Universal

Group of Companies (the “Group”). The principal activities of the Group during the year were life

insurance, accident and health insurance and administration of superannuation and managed pension funds in Cyprus. The Group companies are set out in note 7.

The Company operates through a network of nine branches for its insurance operations in Cyprus.

FINANCIAL RESULTS

In 2017 the Group recorded profit after tax amounting to €1 799 000 compared to profit of €811 000 in 2016.

The financial highlights for 2017 and 2016 are as follows:

DIVIDENDS

The Board of Directors does not propose the payment of a final dividend for 2017.

RISK MANAGEMENT Like all other financial organisations, the Group is exposed to risks, the most significant of which are those

arising from obligations to policyholders and risks of financial instruments held. These risks are monitored on a systematic basis and all the necessary measures are taken to prevent undue risk concentrations.

Further information on the Group’s insurance and financial risks, are presented in note 29 of the

Consolidated Financial Statements.

FUTURE DEVELOPMENTS The most significant objectives of the Group for the next three years are the following:

Maximizing the value of the Group.

Increase the new business market share of the life operations in Cyprus.

Strengthen the leading position in the private medical insurance market in Cyprus.

Reinforce the distribution network for insurance operations.

Improve the corporate image of the Group’s companies.

Improve the quality of provided services.

Improve information technology systems.

Maximise the investment returns.

Preserve a favourable working environment for the employees.

The planning and implementation for the achievement of the above objectives has already commenced.

2017 2016

€000 €000

Group gross premiums 124 017 81 782

Profit for the year before tax 3 054 1 472

Profit for the year after tax 1 799 811

Insurance contracts liabilities 287 623 277 709

Total assets 388 935 360 245

Total equity 33 481 32 815

Management Report

4

GROUP OPERATING ENVIRONMENT

Economic recovery in Cyprus accelerated in 2017 and the medium-term outlook is favourable, driven by an improving labour market, broadening investments and increasing resilience. Cyprus continues to face

challenges, primarily in terms of public and private debt and non-performing loans but also with possible deterioration of the external environment.

Real Gross Domestic Product (GDP) in Cyprus increased by 3.9% in 2017, according to the Cyprus Statistical Service, compared with a 3,4% increase in the previous year while in the labour market the

unemployment rate dropped to 11% on average in the year, from 13% in the previous year. The average consumer inflation was marginally positive at 0,5% after four years of deflation. In the public sector, the

budget surplus increased significantly in 2017, while in the banking sector financing conditions continued to improve as a result of positive developments in non-performing loans.

The growth momentum is expected to be maintained in the medium term. Growth will come mainly from

private consumption, investments expenditure and continuous improvement in the labour market. On the

supply side, growth is expected to be driven by favourable developments in the tourism sector and robust performance in business services. Tourism remains robust and continues to benefit from geopolitical

uncertainties in competing destinations.

Upside factors relate to a longer period of low oil prices, further improvement of economic fundamentals in the euro area and stronger investment spending as property prices are stabilising and as projects in

tourism, energy and public works are being implemented. Downside risks to the outlook are associated with the still high levels of NPEs and public debt ratio. The Cypriot government rating has been repeatedly

upgraded following the consistent outperformance in public finances and the progress achieved in the

banking sector.

SHARE CAPITAL During the year the issued share capital of the Company increased by 267 146 fully paid ordinary shares

of € 1,00 each. These shares were the result of the dividend distribution from earnings of 2015 amounting to € 0,102 per share. The issue price of the new shares was € 5,27 each.

DIRECTORS’ INTEREST IN THE SHARE CAPITAL OF THE COMPANY

The beneficial interest in the share capital of the Company, of the Board of Directors, their spouses and

minor children and of companies in which they hold, directly or indirectly, at least 20% of the voting

shares, at 31 December 2017 and 2 May 2018 is presented below:

31 December 2 May

2017 2018 % %

Photos I. Photiades 58,33 58,33

Andreas Georghiou 0,36 0,36

Demosthenis Z. Severis 0,08 0,08

Pavlos Ph. Photiades 84,92 84,92

Alexis Ph. Photiades 58,37 58,37

George A. Georghiou 27,75 27,75

The above percentages of Messrs Photos I. Photiades, Pavlos Ph. Photiades and Alexis Ph. Photiades include the participation of 58,33% in companies in which they hold directly or indirectly at least 20% of

the voting rights in a general meeting.

In addition, the above percentages of Messrs Pavlos Ph. Photiades and George A. Georghiou include the

participation of 24,76% in a company in which they hold directly or indirectly at least 20% of the voting

rights in a general meeting.

Management Report

5

The other members of the Board namely Messrs Constantinos Dekatris, Socrates Solomides, Stavros

Christodoulides and Maria Agrotou Iacovidou and their related persons and companies, do not hold any voting rights in a general meeting.

SHAREHOLDERS HOLDING MORE THAN 5% OF THE SHARE CAPITAL

In accordance with the Company’s register of members, the following shareholders held directly more

than 5% of the issued share capital of the Company as at 31 December 2017 and 2 May 2018.

31 December 2 May

2017 2018

% %

Photos Photiades Group Ltd 54,08 54,08

Magnum Investments Ltd 24,77 24,77

CORPORATE GOVERNANCE CODE

The Company has adopted the Corporate Governance Code as it was issued by the Cyprus Stock Exchange. The Directors’ Report on Corporate Governance is presented in pages 15-25 of the Greek

Annual Report and includes information required by Article 5 of the Directive ΟΔ190-2007-04 of the Cyprus Securities and Exchange Commission.

BOARD OF DIRECTORS

During 2017 and up to the date of this Report, the Board of Directors is comprised of the following members:

Photos I. Photiades, Ph.D (Chairman)

George A. Georghiou (Vice Chairman)

Dr. Andreas C. Kritiotis (resigned on 2/2/2018)

Andreas Georghiou

Constantinos Dekatris

Demosthenis Z. Severis

Socrates Solomides

Alexis Ph. Photiades

Pavlos Ph. Photiades

Stavros Christodoulides

Maria Agrotou Iacovidou (appointed on 24/3/2017)

In accordance with the Company’s Articles of Association, Messrs Pavlos Photiades and George Georghiou retire by rotation and being eligible, offer themselves for re-election.

EVENTS AFTER THE REPORTING PERIOD

There were no significant events after the reporting date.

INDEPENDENT AUDITORS

The independent auditors of the Company, Ernst & Young Cyprus Ltd have expressed their willingness to continue in office. A resolution for their appointment and for their remuneration will be proposed at the

Annual General Meeting.

Photos Ia. Photiades, Ph.D

Chairman 2 May 2018

Consolidated Statement of Comprehensive Income For the year ended 31 December 2017

6

Note 2017 2016

€000 €000

Transfer from Consolidated Income Statement of:

Life insurance and annuity business 5 100 3 450

Accident and health insurance business (684) (629)

4 416 2 821

Income from the administration of superannuation and pension funds 49 46

Net loss from other operations 5 (1 168) (1 349)

Impairment of amounts due (194) -

Other expenses related to the administration of superannuation and pension funds and non attributable (49) (46)


Tax 6 (1 255) (661)

Profit for the year after tax 1 799 811

Other comprehensive income not to be reclassified in the consolidated income statement in subsequent periods

Revaluation of property (60) 103

Deferred tax on revaluation of property (66) (8)

Net comprehensive income not to be reclassified in the consolidated income statement in subsequent periods (126) 95

Other comprehensive income for the year after tax (126) 95

Total comprehensive income for the year after tax 1 673 906

The notes on pages 24 to 54 form part of the financial statements

Consolidated Income Statement of Life Insurance and Annuity Business For the year ended 31 December 2017

7


Note 2017 2016

€000 €000

Income

Gross premiums

82 359 45 458

Reinsurance premiums (28 808) (3 805)

Net premiums 53 551 41 653

Commission from reinsurers 741 772

Investment and other income 3 1 235 1 253

Increase in fair value and profit on sale of investments at fair value through profit or loss 6 034 5 765

61 561 49 443

Outgo

Gross payments to policyholders (55 237) (36 000)

Reinsurers’ share of payments to policyholders 21 185 1 650

Operating expenses 4 (6 035) (6 823)

Commission to insurance agents (10 734) (3 669)

Interest expense (57) (192)

Foreign exchange differences (2) (12)

(50 880) (45 046)

Change in liabilities and unappropriated surplus

Gross change in insurance contracts liabilities 23 (8 032) (1 359)

Reinsurers’ share of change in insurance contracts liabilities 23 2 479 421

Change in unappropriated surplus 22 (28) (9)

(5 581) (947)

Excess of income over outgo for the year transferred to the consolidated statement of comprehensive income 5 100 3 450

Consolidated Income Statement of Accident and Health Insurance Business For the year ended 31 December 2017

8


Note 2017 2016

€000 €000

Income

Gross premiums

41 658 36 324

Reinsurance premiums (30 337) (26 445)

Net premiums 11 321 9 879

Commission from reinsurers 6 042 5 255

Income from investments and other income 3 5 13

17 368 15 147

Outgo

Gross payments to policyholders (32 357) (28 273)

Reinsurers’ share of payments to policyholders 23 602 20 338

Operating expenses 4 (4 527) (3 257)

Commission to insurance agents (4 081) (3 709)

Interest expense (158) (190)

(17 521) (15 091)

Gross change in insurance contracts liabilities 23 (1 882) (1 727)

Reinsurers’ share of change in insurance contracts liabilities 23 1 351 1 042

(531) (685)

Excess of outgo over income for the year transferred to the consolidated statement of comprehensive income (684) (629)

Consolidated Statement of Financial Position As at 31 December 2017

9

Ph. I. Photiades Ph.D, Chairman

Kypros Miranthis , Deputy Chief Executive Officer &

General Manager

Pantelis Iacovides, Chief Financial Officer


Note 2017 2016

€000 €000

Assets

Cash and deposits with banks 9 27 362 21 658

Debtors and prepayments 10 2 757 3 868

Investment properties 11 110 088 110 179

Financial assets at fair value through profit or loss 12 153 322 143 702

Loans and receivables 13 4 940 5 250

Reinsurers’ share in insurance contracts liabilities 23 15 415 11 585

Premiums receivable and other insurance receivables 15 16 921 3 407

Tax receivable 6 380 289

Inventory 17 39 420 41 408

Property and equipment 18 17 233 17 407

Intangible assets 19 1 097 1 492

Total assets 388 935 360 245

Liabilities

Bank overdraft 9 2 643 1 772

Creditors and accruals 20 2 300 2 708

Insurance liabilities 21 36 973 20 030

Tax payable 6 257 218

Deferred tax 6 7 748 7 781

Unappropriated surplus of life insurance business 22 735 707

Insurance contracts liabilities 23 287 623 277 709

Liabilities of superannuation and managed pension funds 14 17 175 16 505

Total liabilities 355 454 327 430

Equity

Share capital 25 14 303 14 036

Share premium 4 623 3 482

Revaluation reserves 26 8 645 8 771

Retained profits 26 5 910 6 526

Total equity 33 481 32 815

Total equity and liabilities

388 935 360 245

Consolidated Statement of Changes in Equity For the year ended 31 December 2017

10


Share

Capital

(Note 25)

Share

Premium

Revaluation

Reserve

(Note 26)

Retained

Profits

(Note 26) Total

€000 €000 €000 €000 €000

At 1 January 2017 14 036 3 482 8 771 6 526 32 815

Profit for the year - - - 1 799 1 799

Other comprehensive income for the year after tax - - (126) - (126)

Total comprehensive income for the year - - (126) 1 799 1 673

Issue of shares (note 25) 267 1 141 - - 1 408

Dividends (note 8) - - - (2 415) (2 415)

At 31 December 2017 14 303 4 623 8 645 5 910 33 481

At 1 January 2016 13 789 2 360 8 676 7 107 31 932

Profit for the year - - - 811 811

Other comprehensive income for the year after tax - - 95 - 95

Total comprehensive income for the year - - 95

811 906

Issue of shares (note 25)

247 1 122 - - 1 369

Dividends (note 8)

- - - (1 392) (1 392)

At 31 December 2016 14 036 3 482 8 771 6 526 32 815

Consolidated Statement of Cash Flows For the year ended 31 December 2017

11


Note 2017 2016

€000 €000

Net cash flow from / (for) operating activities 28 7 985 (4 454)

Cash flow from investing activities

Net proceeds from / (payments for) investment property 22 (1 450)

Net payments for purchase of inventory (415) 147

Net payments for purchase of multi asset funds 7 676 5 912

Net proceeds from sale and maturity of debt securities (6 431) (2 078)

Net proceeds from purchase and sale of equity shares (4 178) (1 688)

Net proceeds from loans to policyholders 116 689

(Increase) / decrease in bank deposits (5 477) 5 763

Net (payments) / proceeds from purchase and sale of property and equipment (139) 1 217

Purchase of intangible assets (59) (39)

Investment income received 1 240 1 266

Net cash flow (for) / from investing activities (7 645) 9 739

Cash flow for financing activities

Payment of dividend (983) -

Repayment of bank loan - (4 905)

Bank loan interest paid - (154) (602)

Net cash flow for financing activities (983) (5 059)

Net (decrease) / increase in cash and cash equivalents (643) 226

Cash and cash equivalents at 1 January 9 130 (96)

Cash and cash equivalents at 31 December 9 (513) 130

Summary of significant accounting policies

12

A summary of the accounting policies followed in respect of items that are considered material or

significant for the results of the year and the financial position of the Group are stated below:

1. Basis of preparation The consolidated financial statements have been prepared in accordance with International

Financial Reporting Standards (IFRSs) as adopted by the European Union (EU). In addition, the

consolidated financial statements have been prepared in accordance with the requirements of the Cyprus Companies Law, Cap. 113.

The consolidated financial statements have been prepared on a historical cost basis, except for

properties held for own use, investment properties, derivative financial instruments and financial assets at fair value through profit, that have been measured at fair value.

The Group presents its consolidated statement of financial position in order of liquidity. An

analysis regarding expected recovery or settlement of financial assets and liabilities within

twelve months after the consolidated statement of financial position date and more than twelve months after the consolidated statement of financial position date is presented in note 30.

Going concern

The Management of the Group has assessed the Group’s ability to continue as a going concern. The Management believes that the Group is able to successfully manage its business risks

despite the uncertain economic outlook of the cyprus economy and that it has sufficient resources to continue its operational existence in the near future. Thus, it continues to use the

base of a going concern in the preparation of the annual consolidated financial statements.

2. Functional and presentation currency

The consolidated financial statements are presented in Euro (€) which is the functional and reporting currency of the financial statements of the Group. All amounts are rounded to the

nearest thousand except where otherwise indicated.

3. Changes in accounting policies and disclosures 3.1 New and amended standards and interpretations

The Group applied for the first time certain standards and amendments, which are effective for

annual periods beginning on or after 1 January 2017. The Group has not early adopted any

other standard, interpretation or amendment that has been issued but is not yet effective.

The nature and the effect of these changes are disclosed below. Although these new

standards and amendments were applied for the first time in 2017, they did not have a material impact on the consolidated financial statements of the Group. The nature of each new standard

or amendment is described below:

Amendments to IAS 12 Income Taxes: Recognition of deferred tax assets for unrealised losses The objective of the amendments is to clarify the requirements of deferred tax assets for

unrealised losses in order to address diversity in practice in the application of IAS 12 Income Taxes. The specific issues where diversity in practice existed relate to the existence of a

deductible temporary difference upon a decrease in fair value, to recovering an asset for more than its carrying amount, to probable future taxable profit and to combined versus separate

assessment. The Group does not expect this standard to have a material impact on its results

and financial position

Amendments to IAS 7: Disclosure initiative The objective of the amendments is to provide disclosures that enable users of financial

statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and noncash changes. The amendments specify that one way


13

to fulfil the disclosure requirement is by providing a tabular reconciliation between the opening

and closing balances in balance sheet for liabilities arising from financing activities, including changes from financing cash flows, changes arising from obtaining or losing control of

subsidiaries or other businesses, the effect of changes in foreign exchange rates, changes in fair values and other changes. The Group has provided the information for the current year in note

28.

Annual Improvements IFRSs 2014-2016 Cycle The International Accounting Standards Board (IASB) has issued the Annual Improvements to IFRSs 2014-2016 Cycle which is a collection of amendments to IFRSs. These did not have an

impact on the consolidated financial statements of the Group. These include:

IFRS 12 Disclosure of interests in other entities:

The amendments clarify that the disclosure requirements in IFRS 12, other than those of summarised financial information for subsidiaries, joint ventures and associates, apply to an

entity’s interest in a subsidiary, a joint venture or an associate that is classified as held for sale,

as held for distribution, or as discontinued operations in accordance with IFRS 5.

3.2 Standards and interpretations that are issued but not yet effective

3.2.1 Standards and interpretations issued by the IASB and adopted by the EU

IFRS 9 Financial Instruments IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement and introduces

new requirements for classification and measurement, impairment, and hedge accounting.

IFRS9 is effective for annual periods beginning on or after 1 January 2018 with early adoption permitted.

Classification and measurement

The classification and measurement of financial assets will depend on how these are managed as part of the business models the Group operates under and their contractual cash flow

characteristics (whether the cash flows represent solely payments of principle and interest (SPPI)). These factors determine whether the financial assets are measured at amortised cost,

fair value through other comprehensive income (FVOCI) or fair value through profit or loss

(FVPL). The combined effect of the application of the business model and the contractual cash flow characteristics tests resulted in some differences in the population of financial assets

measured at amortised cost under IAS 39. The classification of financial liabilities remains the same except from liabilities measured at fair value whose gains and losses regarding changes in

credit risk will be included in other comprehensive income.

Impairment The impairment requirements apply to financial assets measured at amortised cost and FVOCI,

lease receivables, certain loan commitments and financial guarantee contracts. At initial

recognition, allowance (or provision in the case of commitments and guarantees) is required for expected credit losses (ECL) resulting from default events that are possible within the next 12

months (12 month ECL). In the event of a significant increase in credit risk, allowance (or provision) is required for ECL resulting from all possible default events over the expected life of

the financial instrument (lifetime ECL).

The assessment of whether credit risk has increased significantly since initial recognition is

performed for each reporting period by considering the change in the risk of default occurring over the remaining life of the financial instrument.


14

Hedge accounting

IFRS 9 includes an accounting policy choice to remain with IAS 39 hedge accounting. The standard does not explicitly address macro hedge accounting strategies, which are being

considered in a separate project. To remove the risk of any conflict between existing macro hedge accounting practice and the new general hedge accounting requirements, the standard

includes an accounting policy choice to remain with IAS 39 hedge accounting. The Group is in

the process of assessing the impact of the standard IFRS 9.

IFRS 4 Applying IFRS 9 Financial instruments with IFRS 4 Insurance contracts (amendments) The amendments are effective for annual periods beginning on or after 1 January 2018. The amendments address concerns arising from implementing the new financial instruments

standard, IFRS 9, before implementing the new insurance contracts standard that the IASB is developing to replace IFRS 4. The amendments introduce two options for entities issuing

insurance contracts: a temporary exemption from applying IFRS 9 and an overlay approach, which would permit entities that issue contracts within the scope of IFRS 4 to reclassify, from

profit or loss to other comprehensive income, some of the income or expenses arising from

designated financial assets. The Group has choose to postpone the adoption of IFRS 9 until the January 2021 when adoption the IFRS 17.

IFRS 15 Revenue from contracts with customers IFRS 15 was issued in May 2014 and establishes a five-step model that will apply to revenue

earned from a contract with a customer (with limited exceptions), regardless of the type of revenue transaction or the industry. The standard’s requirements will also apply to the

recognition and measurement of gains and losses on the sale of some non-financial assets that are not an output of the entity’s ordinary activities (e.g., sales of property, plant and equipment

or intangibles). Extensive disclosures will be required, including disaggregation of total revenue;

information about performance obligations; changes in contract asset and liability account balances between periods and key judgements and estimates. Either a full retrospective

application or a modified retrospective application is required for annual periods beginning on or after 1 January 2018. Early adoption is permitted. The Group does not expect this standard to

have a material impact on its results and financial position since the accounting treatment of insurance contracts are under IFRS 4.

IFRS 15 Revenue from contracts with customers (clarifications) The objective of the clarifications is to clarify the IASB’s intentions when developing the

requirements in IFRS 15 Revenue from contracts with customers, particularly the accounting of

identifying performance obligations amending the wording of the separately identifiable principle, of principal versus agent considerations including the assessment of whether an entity

is a principal or an agent as well as applications of control principle and of licensing providing additional guidance for accounting of intellectual property and royalties. The clarifications also

provide additional practical expedients for entities that either apply IFRS 15 fully retrospectively or that elect to apply the modified retrospective approach. The Group is in the process of

assessing the impact of this standard on its results and financial position.

Annual improvements IFRSs 2014–2016 cycle The IASB has issued the Annual improvements to IFRSs 2014–2016 cycle, which is a collection

of amendments to IFRSs. The amendments are effective for annual periods beginning on or after 1 January 2018 for IFRS 1 First-time adoption of IFRS and for IAS 28 Investments in

associates and joint ventures. Earlier application is permitted for IAS 28 Investments in associates and joint ventures. The Group does not expect these to have any impact on its

results and financial position.

IFRS 1 First-time adoption of IFRS:

This improvement deletes the short-term exemptions regarding disclosures about


15

financial instruments, employee benefits and investment entities, applicable for first time

adopters.

IAS 28 Investments in associates and joint ventures:

The amendments clarify that the election to measure at fair value through profit or loss

an investment in an associate or a joint venture that is held by an entity that is venture capital organisation, or other qualifying entity, is available for each investment in an

associate or joint venture on an investment-by-investment basis, upon initial recognition.

IFRS 16 Leases The standard is effective for annual periods beginning on or after 1 January 2019. IFRS 16 sets

out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contact, i.e. the customer (lessee) and the supplier (lessor). The new standard

requires lessees to recognise most leases on their financial statements. Lessees will have a single accounting model for all leases, with certain exemptions. Lessor accounting is

substantially unchanged. The Group is in the process of assessing the impact of this standard on its results and financial position.

3.2.2 Standards and interpretations issued by the IASB but not yet adopted

Amendment in IFRS 10 Consolidated financial statements and IAS 28 Investments in associates and joint ventures: sale or contribution of assets between an investor and its associate or joint venture The amendments address an acknowledged inconsistency between the requirements in IFRS 10

and those in IAS 28, in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or

loss is recognised when a transaction involves a business (as defined in IFRS 3). A partial gain or loss is recognised when a transaction involves assets that do not constitute a business. In

December 2015, the IASB postponed the effective date of this amendment indefinitely pending

the outcome of its research project on the equity method of accounting. The Group does not expect these amendments to have a material impact on its results and financial position.

Amendments IFRS 2: Classification and measurement of share based payment transactions The amendments provide requirements on the accounting for the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments, for share-based

payment transactions with a net settlement feature for withholding tax obligations and for modifications to the terms and conditions of a share based payment that changes the

classification of the transaction from cash-settled to equity-settled. The amendments are

effective for annual periods beginning on or after 1 January 2018 with earlier application permitted. The Group does not expect these amendments to have a material impact on its


IAS 40: Transfers to investment property (amendments) The amendments clarify when an entity should transfer property, including property under construction or development into, or out of investment property. The amendments state that a

change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. A mere change in management’s intentions

for the use of a property does not provide evidence of a change in use. The amendments are

effective for annual periods beginning on or after 1 January 2018 with earlier application permitted. The Group does not expect these amendments to have a material impact on its



16

Amendment to IFRS 9: Prepayment features with negative compensation The amendment is effective for annual reporting periods beginning on or after 1 January 2019 with earlier application permitted. The amendment allows financial assets with prepayment

features that permit or require a party to a contract either to pay or receive reasonable compensation for the early termination of the contract (so that, from the perspective of the

holder of the asset there may be negative compensation), to be measured at amortised cost or

at fair value through other comprehensive income. The Group is in the process of assessing the impact of this amendment on its results and financial position.

Amendments to IAS 28: Long-term interests in associates and joint ventures The amendments are effective for annual reporting periods beginning on or after 1 January

2019 with earlier application permitted. The amendments relate to whether the measurement, in particular impairment requirements, of long term interests in associates and joint ventures that,

in substance, form part of the net investment in the associate or joint venture should be governed by IFRS 9, IAS 28 or a combination of both. The amendments clarify that an entity

applies IFRS 9 before it applies IAS 28, to such long-term interests for which the equity method

is not applied. In applying IFRS 9, the entity does not take account of any adjustments to the carrying amount of long-term interests that arise from applying IAS 28. The Group is in the

process of assessing the impact of these amendments on its results and financial position.

International Financial Reporting Interpretations Committee (IFRIC) Interpretation 22: Foreign currency transactions and advance consideration The interpretation clarifies the accounting for transactions that include the receipt or payment of

advance consideration in a foreign currency. The interpretation covers foreign currency transactions when an entity recognises a non-monetary asset or a non-monetary liability arising

from the payment or receipt of advance consideration before the entity recognises the related

asset, expense or income. The interpretation states that the date of the transaction, for the purpose of determining the exchange rate, is the date of initial recognition of the non-monetary

prepayment asset or deferred income liability. If there are multiple payments or receipts in advance, then the entity must determine a date of the transactions for each payment or receipt

of advance consideration. The Group does not expect this interpretation to have a material impact on its results and financial position.

IFRIC Interpretation 23: Uncertainty over income tax treatments The interpretation is effective for annual periods beginning on or after 1 January 2019 with

earlier application permitted. The interpretation addresses the accounting for income taxes when

tax treatments involve uncertainty that affects the application of IAS 12. The interpretation provides guidance on considering uncertain tax treatments separately or together, examination

by tax authorities, the appropriate method to reflect uncertainty and accounting for changes in facts and circumstances. The Group is in the process of assessing the impact of this amendment

on its results and financial position.

IFRS 17: Insurance Contracts The standard is effective for annual periods beginning on or after 1 January 2021 with earlier application permitted if both IFRS 15 Revenue from contracts with customers and IFRS 9

Financial instruments have also been applied. IFRS 17 Insurance contracts establishes principles

for the recognition, measurement, presentation and disclosure of insurance contracts issued. It also requires similar principles to be applied to reinsurance contracts held and investment

contracts with discretionary participation features issued. The objective is to ensure that entities provide relevant information in a way that faithfully represents those contracts. This information

gives a basis for users of financial statements to assess the effect that contracts within the scope of IFRS 17 have on the financial position, financial performance and cash flows of an

entity. The Group is in the process of assessing the impact of this standard on its results and financial position for 2018.


17

Annual improvements IFRSs 2015-2017 cycle The IASB has issued the Annual improvements to IFRSs 2015-2017 cycle, which is a collection of amendments to IFRSs. The amendments are effective for annual periods beginning on or after 1

January 2019, with early application permitted. The Group does not expect these to have material impact on its results and financial position.

IFRS 3 Business combinations and IFRS11 Joint arrangements: The amendments to IFRS3

clarify that a company remeasures its previously held interest in a joint operation when it obtains control of the business. IFRS 11 Joint arrangements clarify that a company does not

remeasure its previously held interest in a joint operation when it obtains joint control of the business.

IAS 12 Income taxes: The amendments clarify that a company accounts for all income tax

consequences of dividend payments in the same way. IAS 23 Borrowing costs: The amendments clarify the paragraph 14 of the standard that a

company treats as part of general borrowings any borrowing originally made to develop an

asset when the asset is ready for its intended use or sale.

IAS 19: Plan amendment, curtailment or settlement (amendments) The amendments are effective for annual periods beginning on or after 1 January 2019 with

earlier application permitted. The amendments require entities to use updated actuarial

assumptions to determine current service cost and net interest for the remainder of the annual reporting period after a plan amendment, curtailment or settlement has occurred. The

amendments also clarify how the accounting for a plan amendment, curtailment or settlement affects applying the asset ceiling requirements. The Group does not expect this interpretation to

have a material impact on its results and financial position.

4. Classification of insurance products An insurance contract is a contract under which one party (the insurer) accepts significant

insurance risk from the other party (the policyholder), by agreeing to compensate the

policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder.

A contract that was classified as an insurance contract remains so until the fulfillment or

expiration of all rights and obligations deriving from the contract, even if the insurance risk has been significantly reduced during the contract period.

5. Basis of consolidation

The consolidated financial statements include the accounts of Universal Life Insurance Public

Company Ltd (the “Company”) and all its subsidiary companies (Note 7) that together with the Company are referred to as the “Group”. Transactions and balances arising between subsidiaries

are eliminated on consolidation. The subsidiaries are consolidated from the date on which the Group acquired control and cease to be consolidated when control is transferred outside the

Group. Control is achieved when the Group has the right to direct the economic and business policies of an entity, resulting in the receipt of economic benefits from its activities.

The financial statements of the subsidiary companies of the Group are prepared for the same

financial reporting period as the holding company, using the same accounting policies.

6. Foreign currency translation

The consolidated financial statements are presented in Euro (€), which is the functional and presentation currency of the Company and its subsidiaries in Cyprus. Transactions in foreign

currencies are recording using the functional currency rate of exchange ruling at the date of transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated

at the functional currency rate of exchange ruling at the reporting date. Non monetary assets


18

and liabilities measured at fair value in foreign currency are translated using the exchange rate

ruling at the date that the fair value was determined.

Exchange differences arising from current transactions in relation to insurance business, the translation of the investments relating to unit-linked investment plans and of other assets and

liabilities denominated in foreign currencies, are dealt with in the income statement of the

respective business.

7. Insurance business Life and annuity business

The income statement of life and annuity business includes life insurance and their supplementary benefits and annuities. Premiums are accounted for when they become due and

the grace period has not elapsed according to the terms of the respective insurance contracts.

Commissions to insurance intermediaries are recognised in the income statement on an accrual

basis, in accordance with the terms of the agreements with intermediaries.

A provision is made for risks incurred and for matured policies. The insurance liabilities and consequently the results of the business are determined following the actuarial valuation of

insurance liabilities for in-force policies, including benefits to participating policies. The amount of the surplus which is allocated to the shareholders of the Company and to the holders of

participating insurance policies or which is retained for distribution in future years is determined by the Board of Directors on the advice of actuary.

Unallocated surplus The unallocated surplus represents the excess of assets over liabilities of policyholders with

Discretionary Participating Features (DPF), not yet divided between them and their shareholders. The Group has elected to classify the entire unallocated surplus as a liability

without sharing equity. This reflects the fact that the participation of shareholders in the distribution of profits occurs only during distribution. The Group has the discretion to decide the

amount and time of distribution of this surplus.

Accident and health insurance business Premiums are accounted for when they become due according to the terms of the insurance contracts.

Insurance policy liabilities includes a provision for the estimated amount of claims that have

arisen but have not been settled by the reporting date. For cases where the claim has been notified, the provision is calculated on a case by case basis and is based on the estimated cost

including settlement expenses. The provision includes claims in relation to risks incurred but not

reported (I.B.N.R) up to the reporting date. Past experience and actual data regarding the number and amount of claims reported after the reporting date are used to calculate this

provision until the preparation of the consolidated financial statements.

Commissions to insurance intermediaries are recognised in the income statement on an accrual basis, in accordance with the terms of the agreements with intermediaries.

The unearned premiums reserve represents the amount of premiums that relates to the risk

period after the reporting date. Provision is made separately for each insurance policy taking

into account the frequency of payment.

The deferred acquisition costs (costs that relate to policies contracted in the current financial year but which relate also to future years) are calculated on a comparable basis to that used for

unearned premiums. The deferred acquisition costs are netted off with the unearned premiums reserve.


19

The reserve for unexpired risks is calculated based on claims and management expenses expected to be incurred after the end of the financial year and is in relation to policies

contracted before this date, to the point that their expected amount exceeds the unearned and outstanding premiums reserve.

Management of retirement and pension funds The Group manages retirement funds and group pension plans on behalf of clients. The relevant

fees are recognized in the consolidated statement of comprehensive income.

8. Investment income Investment income includes interest income, dividends and rents from investment property and

is shown after the deduction of investment management fees.

Interest income is recognised on an accruals basis, taking into consideration the effective

interest rate of the relevant financial assets.

Dividends income is recognised when the Group’s right to receive payment is established.

Rental income from investment properties is accounted for on a systematic basis over the rental period.

9. Provision of retirement benefits

The Group operates several defined contributions plans for providing retirement benefits to

permanent employees and insurance agents.

Contributions are made in separate defined contribution schemes calculated as fixed percentages of the emoluments of staff and of the commissions of insurance agents. The

relevant cost is recognised in the consolidated statement of comprehensive income.

10. Interest Payable

The interest payable is recognised as expense in the year in which it is incurred.

11. Leases Leases where the lessor substantially retains all the risks and rewards of ownership of the asset

are classified as operating leases. The payment of rents for operating leases is recorded as expense on a systematic basis over the duration of the lease.

12. Investment property

Property that is held by the Group for rental and / or for capital appreciation is classified as

investment property. In the case that property held by the Group is used partly in the Group’s operations and partly for rental or is kept for capital appreciation, the classification is dependent

on whether the constituent parts can be sold separately. If this is not the case, the property is classified as property used in the Group’s operations unless the part used by the Group is

insignificant. The classification of properties is examined on a systematic basis and is revised whenever there are significant changes in their use.

Investment properties are initially measured at cost including transaction costs. Subsequent to

initial recognition investment properties are measured at fair value as at the reporting date.

Valuations are carried out by independent valuers. Depending on the nature of the property and the existing market information the determination of fair value may require the use of estimates

such as future cash flows from property and the appropriate discount rate for the flows. Properties held for unit-linked investment plans are subject to intermediate valuations

performed by the Group’s Management.


20

Gains or losses arising from changes in the fair value of investment properties are included in

the consolidated income statement of the period in which they arise.

Transfers to or from investment properties are made when there is a change in use evidenced by the end of private use, the beginning of an operating lease to another person or the

completion of construction or development. For a transfer from investment property to owner-

occupied property, the deemed cost of property for subsequent recognition is the fair value at the date of change in use. If an owner-occupied property is transferred to investment property,

the Group recognises this property in accordance with the policy followed for owner-occupied properties until the date of the change in use.

13. Investments

All investments are classified as investments at fair value through profit or loss and are measured at fair value.

All purchases and sales of investments for normal delivery are accounted for on the date of the transaction, on which the Group is committed to purchase or sell the investment.

Investments cease to be recognised when the contractual rights over their related cash flows

expire or when the Group transfers all risks and rewards of ownership.

Investments classified as investments at fair value through profit or loss include investments held for trading and other investments.

Investments held for trading are those that (a) are acquired or incurred principally for the

purpose of sale or repurchase in the near future, or (b) are part of a portfolio of separately identifiable financial instruments that have been commonly managed and for which there is

evidence of a recent pattern of short term profit- taking.

All other investments are classified as investments at fair value through profit or loss upon their initial recognition when (a) the classification removes or reduces significantly an inconsistency

that relates to the measurement of assets or liabilities or the recognition of related profits or

losses using different bases or (b) they are collectively managed, investment performance is assessed having regard to their fair value in accordance with a verified risk or investment

management strategy and information is provided to the Management of the Group on the same basis.

Investments at fair value through profit or loss are measured at fair value, based on market

prices for listed securities. The fair value of unlisted securities is estimated using appropriate models and valuation methods and/or on the basis of the investee’s financial results, condition

and prospects of the investee, compared to those of similar companies for which quoted market

prices are available. Changes in fair value of investments classified at fair value through profit or loss are recognized in the consolidated statement of comprehensive income.

All Group investments are classified as investments at fair value through profit or loss as all the

conditions for such classification are met.

14. Property, equipment and computer software Freehold land and buildings occupied by the Group for use in the supply of services or for

administrative purposes are classified as properties used for the operations of the Group and are

initially measured at cost. Periodically, these properties are revalued to their estimated fair value, based on valuations by independent qualified valuers, less accumulated depreciation.

Depreciation is calculated on the revalued amount less the estimated residual value on a straight

line basis over the useful economic life, which has been estimated to be between 25 and 50 years.


21

On disposal of freehold property, the relevant reserve balance is transferred to retained earnings / accumulated losses.

The cost of adapting / improving leasehold property is amortised over 10 years or during the

period of the lease if it does not exceed 10 years.

Equipment and computer software is measured at cost less accumulated depreciation and any

impairment. Depreciation is calculated on a straight-line basis over their expected useful life using the following rates per annum:

Office, furniture and equipment 10% - 25%

Motor vehicles 12% - 20% Computer software 25% - 33 ⅓%

The carrying value of property, equipment and computer software is reviewed for impairment

when events or changes in circumstances indicate that the carrying value may not be recoverable. If there is such an indication and the carrying value is greater than the expected

recoverable amount the assets or the cash flow creating units are impaired to the recoverable amount. The recoverable amount for property, equipment and computer software is the greater

of the net sale proceeds and the value in use. For the calculation of the value in use, the expected future ash flows are discounted to their present value using a pre-tax discount rate

that reflects the current estimates of the market for the time value of money and the specific risks associated with the asset. For assets that do not generate cash flows from their continuous

use, that are independent of the cash flows of other assets, the recoverable amount is

determined for the unit that generates the cash flows to which the asset belongs.

15. Inventories Property acquired or is under construction with the intention to sell it in the ordinary course of

business are classified as inventories and are measured at the lower of cost or net realisable value.

The cost includes:

Cost of land acquisition.

Property rights and lease for the land.

Amounts paid to contractors for construction.

Borrowing costs, design and planning costs, the cost of site preparation, professional fees for

legal services, property transfer taxes, general construction costs and other related expenses.

Net realisable value is the estimated selling price in the normal operations of the Group, based

on market prices at the reporting date, less the costs of completion and the estimated costs to

make sale.

The cost of inventories recognised in the calculation of the gain or loss on disposal, is determined by reference to specific expenditure incurred on the property sold and for

distribution of non-specific costs based on the relative size of the unit being sold.

16. Claims from reinsurers The Group reinsures risks that exist as a result of insurance contracts issued in the normal

course of business.

Claims from reinsurers include their share of insurance contracts liabilities and of insurance

claims and are calculated in accordance with the terms of the reinsurance agreements.


22

Reinsurance premiums, commissions from reinsurers and their share in insurance contracts

liabilities are shown separately in the financial statements.

Amounts due from reinsurers are reviewed for possible impairment and are impaired to the recoverable amount when there is objective evidence that the Group may not collect the whole

amount due according to the terms of the reinsurance agreements.

17. Insurance receivables and other debtors

Insurance receivables and other debtors are presented in the consolidated statement of financial position net of the provisions for bad and doubtful debts that may arise in the normal course of

business.

A specific provision is made when there is objective evidence that the Group will not fully collect the amount due. The provision is the difference between the carrying amount of the claim and

the expected recoverable amount that is defined as the present value of the expected future

cash flows including the expected recoverable amounts from guarantees and securities discounted using the effective interest rate of the debt.

18. Derivatives

Derivative financial instruments are recognised in the consolidated statement of financial position at their fair value. They are valued using valuation techniques that use observable

market data as the basis for the valuation. The most frequently used models take into account the current market prices, estimates of discounted cash flows and valuation methods for

derivatives. These models use various facts including the creditworthiness of the counterparties

involved, current foreign exchange rates, forward exchange rates and interest rate yield curves. The Group is not in possession of derivatives that are valued with models that do not use

observable market data as the basis for the valuation.

Derivatives are classified as assets when their fair value is positive and as liabilities when their fair value is negative.

19. Advances Advances to customers originate when money is provided directly to the customer. They are

valued initially at the fair value of the consideration given for the creation of the advance including transaction costs and subsequently are stated net of provisions for impairment, which

may arise during the ordinary course of business and are written off to the extent that there is no realistic prospect of recovery.

The collectability of advances is evaluated based on the individual customer’s overall financial

position, resources and repayment history, the prospect of support from any creditworthy

guarantors and the realisable value of any collateral.

When an advance has been classified as impaired, its carrying amount is reduced to its estimated recoverable amount, being the present value of its expected future cash flows,

including recoverable amounts from guarantees and collateral. The amount of provision is the difference between the carrying amount and the estimated recoverable amount.

20. Income Tax

Provision is made for income tax in accordance with the fiscal regulations and rates which apply

in the countries where the Group operates and is recognised as an expense in the period in which the income arises. Deferred tax is provided using the liability method.

Deferred tax liabilities are recognised for all taxable temporary differences between the tax basis

of assets and liabilities and their carrying amounts at the reporting date which will give rise to taxable amounts in future periods.


23

Deferred tax assets are recognised for all deductible temporary differences and carry-forward of unutilised tax losses, to the extent that it is probable that taxable profit will be available against

which the deductible temporary differences and carry-forward of unutilised tax losses can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting date and is

reduced to the extent that it is no longer probable that sufficient taxable profits will be available

to utilise all or part of the deductible temporary differences or tax losses.

Deferred tax assets and liabilities are measured at the amounts that are expected to be recovered from or paid to the tax authorities, taking into account the legislation and tax rates in

force or materially enacted, up to the reporting date.

Current and deferred tax assets and liabilities are offset when they arise from the same tax reporting entity and relate to the same tax authority and when the legal right to offset exists.

21. Cash and cash equivalents For the purposes of the consolidated cash flow statement, cash and cash equivalents comprise

cash deposits and other highly liquid investments that are readily convertible into cash or are repayable within three months of the date of acquisition, less any bank overdrafts.

22. Bank loans

The bank loans are initially measured at fair value net of transaction costs. After initial recognition, bank loans are measured at amortized cost using the effective interest

method.

23. Provisions for legal disputes

Provisions for legal disputes are recorded when: (a) The Group has a current obligation (legal or constructive) arising from past events, (b) it is possible that a cash outflow of economic benefits

would be required for settlement of the obligations and (c) a reliable estimate of the amount of the obligation can be made.

24. Offsetting financial instruments

Financial assets and financial liabilities may be offset and the net amount reported in the consolidated financial statement position when the Group has a legally enforceable right to

offset the amounts and there is an intention to settle on a net basis or to realise the asset and

settle the liability simultaneously.

25. Write off of financial liabilities A financial liability is written off when it is repaid, namely when the contractual liability is fulfilled

or cancelled, or when it expires.

26. Share capital and share premium Ordinary shares are classified as equity. The difference between the fair value that is received

by the Group upon the issue of shares and the nominal value of the issued share capital is

transferred to the share premium account.

This difference can be recovered in limited ways, which do not include the distribution of dividends and is subject to the provisions of the Companies Law on the reduction of share

capital.

Notes to the Consolidated Financial Statements

24

1. CORPORATE INFORMATION

The consolidated financial statements of the Universal Group for the year ended 31 December 2017, were authorised for issue by the Board of Directors on 2 May 2018.

Universal Life Insurance Public Company Ltd (the «Company») was incorporated in Cyprus and is a public company in accordance with the provisions of the Cyprus Companies and Income Tax Laws. The Company

is the parent company of the Universal Group.

The Company's registered office is located at 85 Dighenis Akritas Avenue, 1070 Nicosia. The principal activities of the Company, its subsidiary and associated companies during the year continued to be life

business, accident and health insurance business, the administration of superannuation and managed pension funds and the provision of other financial services and investment in property.

2. SIGNIFIGANT ACCOUNTING JUDGMENTS AND ESTIMATES

The preparation of the financial statements in accordance with IFRS requires that the Group’s Management to make assumptions and judgments that affect the carrying values of assets and liabilities,

the disclosures of contingent liabilities and commitments at the date of preparation of the financial statements as well as the income and expenses for the period under review. As a result actual results

may differ from these estimates. These estimates are periodically reviewed and when adjustments are required these are accounted for in the period in which they occur. The main assumptions and estimates

with respect to the future that are made at the consolidated statement of financial position date and

incorporate significant risk of material adjustments to the carrying values of assets and liabilities within the next financial year are presented below.

Life insurance policies For life insurance policies actuarial estimates are made, for every year that the Group is at risk, of the expected number of deaths based on standard international mortality tables that reflect historical

mortality experience. The expected number of deaths determines the value of potential future benefits expected to be paid. This value contributes to the calculation of adequate reserves that are monitored in

relation to the expected revenue from current and future premiums Group.

Estimates are also made as to future investment income arising from assets backing life insurance

contracts. These estimates are based on current market returns as well as expectations about future economic and financial developments.

Estimates for future deaths, voluntary terminations, investment returns and administration expenses are

used to calculate the liability over the term of the contract. At each reporting date, these are reassessed for adequacy, with corresponding adjustments.

Accident and health insurance policies For accident and health insurance policies, estimates are made for the expected ultimate cost of claims

reported to the Group as well as of claims incurred but not yet reported (IBNR) at the reporting date. The assessment of claims is based on past experience and on actual facts up to the date of preparation of the

financial statements.

Provisions for impairment of debtors The Group reviews for evidence that it may not be able to collect all amounts due from debtors. Evidence

includes the customer’s payment record, overall financial position and the realisable value of any

collateral. If such evidence exists, the recoverable amount is estimated and a provision is made for impairment and recognised to the consolidated statement of comprehensive income. The review of credit

risk is continuous. The methodology and assumptions used for estimating the provision are regularly reviewed to reduce any differences between estimated and actual losses.


25

Fair value of property for own use and property for investment The Group's accounting policy in relation to both the Group's property for own use and the property held for investment requires that it be measured at fair value. In the case of real estate held for own use, the

valuation is performed at regular intervals so that the book value does not differ materially from the fair value, while in the case of the real estate to be invested, the fair value is determined at each reporting

date. Estimates are made by qualified valuers by applying valuation models as recommended by the Royal

Institution of Chartered Surveyors and the International Standards for Assessment Committee. Appraisers have used their knowledge of their market and professional judgment for their estimates and have not

been based solely on historical trading data, given that the degree of uncertainty is higher than the existence of a more active market for determining of the market value of the property. Depending on the

nature of the property in question and the existing market information, the use of estimates such as future cash flows from the property and the appropriate discounted rate of such flows may be required to

determine the fair value of the property. All these estimates are based on prevailing local market conditions at the reporting date.

Property inventory - estimate of net realizable value Property inventories are valued at the lowest cost and net realizable value. Net realizable value is determined as the estimated selling price less selling costs. The Group estimates the expected selling price

through estimates made by qualified valuers. Appraisers have used their knowledge of their market and professional judgment for their estimates and have not been based solely on historical trading data, given

that the degree of uncertainty is higher than the existence of a more active market for determining of the market value of the property. Sales expenses are always taken into account and deducted from net

realizable value. Depending on the value of the property in question and the existing information on the market, the determination of the selling cost may require a professional judgment involving a high degree

of uncertainty due to reduced market activity.

Income Tax The Group operates and is therefore subject to tax in Cyprus and Romania. Estimates are required in determining the provision for income taxes at the reporting date and therefore the final tax determination

is uncertain. Where the final tax is different from the amounts that were initially recorded, such differences will impact the income tax expense, the tax liabilities and deferred tax liabilities in the period

in which the final tax is agreed with the tax authorities.

3. INVESTMENT AND OTHER INCOME

2017 2016

€000 €000

Life insurance and annuity business

Interest income 576 694

Dividends 490 448

Rental income from investment property 169 111

1 235 1 253

Accident and health insurance business

Interest income 5 13


26

4. EXPENSES ANALYSIS

Other operating expenses include the fees (including taxes) of the independent auditors of the Company

Ernst & Young Cyprus Limited for audit and other professional services rendered as follows:

2017 2016

€000 €000

Parent Company:

- Fees for the audit of financial statements 98 89

- Fees for tax services 3 3

- Fees for other services 37 62

Subsidiaries:

- Fees for the audit of financial statements 19 19

- Fees for tax services 3 3

2017 2016

€000 €000

Consolidated Income Statement of Life Insurance and Annuity Business 6 035 6 823

Consolidated Income Statement of Accident and Health Insurance Business 4 527 3 257

10 562 10 080

Salaries and employer’s contributions 6 216 5 988

Retirement benefit costs 482 466

Directors’ emoluments:

- Fees 168 160

- Emoluments in executive capacity 193 161

- Employer’s contributions 31 30

Depreciation of property and equipment 312 347

Amortisation of intangible fixed assets 453 432

(Profit) / loss on disposal and write-off of property and equipment and intangible fixed assets (2) 4

Operating lease rentals for buildings 176 120

Advertising and promotion expenses 372 343

Repair and maintenance expenses 369 376

Telecommunications and postages 221 153

Administrative expenses and related commissions 259 269

Printing and stationery 162 160

Other operating expenses 1 150 1 071

10 562 10 080


27

5. NET LOSS FROM OTHER OPERATIONS

2017 2016

€000 €000

Income from fees and commissions 354 319

Decrease in fair value from other investments (1) -

353 319

Salaries and other operating expenses (344) (345)

Provision for impairment - (2)

Change in fair value of investment properties (1 177) (1 321)

(1 168) (1 349)

Other operations are carried out by subsidiaries acting mainly as general insurance intermediaries and

investors in property.

6. TAX

2017 2016

€000 €000

Consolidated Statement of Comprehensive Income

Corporation tax 1 235 682

Special contribution to the defence fund 4 2

Deferred tax

16 (23)

Total tax 1 255 661

2017 2016

Analysis of tax charge €000 €000

Tax at 1,5% of gross premiums of life insurance business in Cyprus 1 235 682


Tax on property revaluation surplus at capital gains tax rates 16 (23)

Total tax 1 255 661

The reconciliation between the income tax expense and the profit before tax as estimated using the

current income tax rates is presented below:

2017 2016

€000 €000

Profit before tax 3 054 1 472

Tax at normal rates in Cyprus 382 184

Tax impact: - expenses not deductible 466 484

- income not taxable (167) (140)

Additional minimum tax 515 101

Losses carried forward 39 52

Deferred tax on capital gains tax rate 16 (23)


1 255 661


28

Cyprus

Income Tax Income tax consists of the tax on insurance operations and other gains. The tax of insurance business is

subject to special tax provisions. The income tax payable in Cyprus in relation to life insurance business is the greater amount of:

(a) the tax which is calculated at the rate of 12,5% (2016: 12,5%) on the taxable profits attributable to

the shareholders, which consists of the net income / expense in the consolidated income statement of life insurance and annuity business and

(b) the tax which is calculated at the rate of 1,5% on gross premium income (minimum tax).The tax charge for life insurance business in Cyprus for the years 2017 and 2016 represents the minimum tax.

Income tax in respect of accident and health insurance business and of other financial services in Cyprus

is calculated at the rate of 12,5% (2016: 12,5%) on the taxable income of the year.

Tax losses amount to €314 180 (2016: €418 583) resulting from the activities of subsidiaries in Cyprus.

According to current legislation, tax losses can be carried forward and offset against taxable income of the next five years from the reporting date. The remaining tax losses at 31 December 2017 may be offset

against future taxable profits up to 2022 (2016: up to 2021).

Deferred tax is not recognised for the above losses since it is not expected to be used before they expire.

Special Contribution to the defence fund

The special contribution for the defence tax is calculated at the rate of 3% on rental income.

Romania

Income tax

Tax losses arise from operations of the subsidiary companies of the Group (Priority Properties Srl and Unilife Properties Srl) in Romania. The balance of tax losses at 31 December 2017 were €8 075 000

(2016: €7 530 000). The tax for these companies is calculated at 3% on net profit (2016: 16%). Losses can be carried forward and can be used against future taxable profits for seven years as shown below:

€000

Carried forward to

2011 1 178 2018

2012 1 221 2019

2013 1 106 2020

2014 886 2021

2015 1 085 2022

2016 1 643 2023

2017 956 2024

Σύνολο 8 075

Deferred tax is not recognised for the above losses since it is not expected to be used before they expire.

Consolidated Statement of Financial Position

2017 2016

€000 €000

Tax payable 257 218

Tax receivable 380 289


29

Deferred tax

The deferred tax arises from:

2017 2016

€000 €000

Company

Difference between wear and tear allowances and depreciation (1 243) (1 227)

Revaluation on investment properties (3 948) (3 883)

(5 191) (5 110)

Subsidiary companies

Revaluation on investment properties (2 557) (2 671)

Deferred tax liability (7 748) (7 781)

7. GROUP COMPANIES

Universal Insurance Agency Ltd Provision of general insurance services as an agent Universal Investments Ltd Closed-end investment company Universal Properties Ltd Owner of land Priority Properties Srl Owner of land

Unilife Properties Srl Owner of land Universal Nominees Ltd Trustee services Universal Securities Ltd Dormant Universal Golf Enterprises PLC Development and operation of the Limassol

Hills Golf Project

All the above companies were incorporated and operate in Cyprus, apart from Priority Properties Srl and

Unilife Properties Srl which are incorporated in Romania and hold property. All of them were wholly owned subsidiaries on both in 2017 and in 2016.

8. DIVIDENDS

At the annual general meeting held on 28 June 2017 it was decided to distribute a dividend from 2015

earnings of €0,07 per ordinary share by issuing Company’s shares. The interim dividend was paid on 24

July 2017 and amounted to €982 534. An amount of €16 343 was deducted at source for special defence

contribution, where applicable, under the Special Contribution for the Defence of the Republic Law.

At an extraordinary general meeting held on 19 December 2017 it was decided to distribute an interim

dividend from 2015 earnings of €0,102 per ordinary share by issuing Company’s shares. The issued price

was €5,27 per share, based on the calculated Embedded Value of the Company as at 30 September 2017.

The interim dividend was paid on 27 December 2017 and amounted to €1 431 693. An amount of €23 813

was deducted at source for special defence contribution, where applicable, under the Special Contribution

for the Defence of the Republic Law.

During 2016, at an extraordinary general meeting held on 23 November 2016 it was decided to distribute

an interim dividend from 2014 earnings of €0,101 per ordinary share by issuing Company’s shares. The

issue price was €5,53 per share, based on the calculated Embedded Value of the Company as at 30 June 2016. The interim dividend was paid on 14 December 2016 and amounted to €1 392 647. An amount of

€23 228 was deducted at source for special defence contribution, where applicable, under the Special Contribution for the Defence of the Republic Law.


30

9. CASH AND DEPOSITS AT BANKS

2017 2016

€000 €000

Cash and deposits at banks 2 130 1 902

Bank overdraft (2 643) (1 772)

As per the consolidated cash flow statement (513) 130

Deposits held as investments of the insurance business 25 232 19 756

24 719 19 886

Cash and deposits at banks bear interest from 0% - 1% annually (2016: 0% - 2% annually) and relate to

deposits maturing within one year.

An amount of €1 218 000 (2016: €1 137 000) is pledged as collateral by banks to provide bank

guarantees required for the Company's operations.

The bank overdraft is payable on demand and is not guaranteed.

10. DEBTORS AND PREPAYMENTS

2017 2016

€000 €000

Debtors 2 689 3 787

Accrued interest 68 81

2 757 3 868

Accrued interest relating to unit-linked funds 27 25

Debtors and prepayments 2 730 3 843

2 757 3 868

The above debtors arise in the normal course of business, are due within 12 months and do not bear

interest.

11. INVESTMENT PROPERTIES

2017 2016

€000 €000

1 January 110 179 109 852

Purchases 38 7 096

Disposals (60) (7 243)

Transfers from investment properties to properties for own use - 1 593

Revaluation (69) (1 119)

31 December

110 088 110 179

Investment properties relating to unit-linked funds 63 666 63 654

Other investment properties 46 422 46 525

110 088 110 179


31

Rental income from investment properties (note 3) €169 000 (2016: €111 000) includes an amount of €41

000 (2016: €40 000) rentals from investments relating to unit linked funds.

The change in the estimated fair value of investment properties during the year is recognised in the

consolidated statement of comprehensive income and in the income statement of life insurance and

annuities business for own investments and investment of life insurance respectively.

Description of valuation techniques and inputs used in measuring the fair value of investment

properties

Category Technical valuation Significant

non-observable inputs

Variation of values (average)

2017 2016 Offices and other commercial premises

Comparative market method and Method of income capitalisation

Annual rent valuation per sq.m. Annual rental yield

€68-€250

5,00%-6,00%

€72-€144

5,00%- 6,00%

Annual estimated fair value per sq.m.

€1 057 - €4 182

€1 034 - €4 182

Area in sq.m.

Total 4 413

Total 4 413

Highest and best use

Existing

Existing

Building plots and agricultural plots

Comparative market method

Annual estimated fair value sq.m persqsq.m.

€10 - €34

€5 - €34

Area in sq.m. Total 4 508 188 Total 4 522 904


Existing

Existing

Residential Comparative market

method

Annual estimated fair value per sq.m 55sq.m.

€1 451 - €1 647

€1 438 - €1 647

Area in sq.m.

Total 2 761

Total 2 761


Existing

Existing

The comparative market method is based on the comparison to properties with similar physical and legal characteristics of both the area under review and in other areas. These comparative data collected from

the archives of the Land Registry Department and have been evaluated taking into account factors such as the specific characteristics of the property, location, urban data, and any restrictions on use and features

of the immediate and wider area.

The capitalisation of income method determines the value of the property by capitalizing the annual rental income at the rate of annual rental yield and is applicable on a case by case basis based on the knowledge

of the market, the most widely acceptable levels of return of income by type of property and

attractiveness of the area and its special features. The methodology does not assume any direct or ongoing renting of the property and the yield used for the capitalisation of rental income takes into

account the risk to remain empty until a new tenant is found.

Recent developments that have affected the Cypriot economy have brought instability in the property market and had the effect of significantly reducing property transactions. The limited information (lack of

sufficient comparable sales) and low levels of liquidity and market activity have affected the degree of certainty in conducting valuations.


32

12. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

2017 2016

€000 €000

Debt securities (Note 12.1) 50 475 43 503

Equity shares (Note 12.2) 70 017 60 392

Multi asset funds (Note 12.3) 18 704 26 270

Money market fund (Note 12.4) 14 126 13 537

153 322 143 702

Investments relating to unit-linked funds 125 117 119 238

Investments relating to superannuation and pension funds 15 454 15 245

Other investments 12 751 9 219

153 322 143 702

12.1 Debt securities

2017 2016

€000 €000

Foreign companies 49 482 42 583

Cyprus public companies 993 920

50 475 43 503

Repayable:

Between two and five years 993 920

After five years 49 482 42 583

50 475 43 503

Listed on the Cyprus Stock Exchange 993 920

Listed on European stock exchanges 49 482 42 583

50 475 43 503

Debt securities include unit-linked debt securities that are classified as held for trading and amount to €40 395 000 (2016: €35 214 000). Debt securities relating to superannuation and pension funds

amounting to €5 288 000 (2016: €5 145 000).

12.2 Equity shares

2017 2016

€000 €000

Listed on the Cyprus Stock Exchange 9 550 8 705

Listed on European stock exchanges 60 293 51 497

Unlisted 174 190

70 017 60 392

Investments in equity shares include unit linked equity shares amounting to €55 401 000 (2016: €47 902 000). Investments in equity shares relating to superannuation and pension funds

amounting to €6 662 000 (2016: €6 419 000).


33

12.3 Multi asset funds

2017 2016

€000 €000

Unlisted 18 704 26 270

Investments in multi asset funds include unit linked multi assets funds amounting to €15 196 000

(2016: €23 068 000). Investments in multi asset funds relating to superannuation and pension funds

amounting to €3 504 000 (2016: €3 198 000).

12.4 Money market funds

2017 2016

€000 €000

Unlisted 14 126 13 537

Investments in money market fund include unit linked money market fund amounting to €14 126 000

(2016: €13 054 000). There were no investments in money market fund relating to superannuation and

pension funds in 2017 (2016: €483 000).

13. LOANS AND RECEIVABLES

2017 2016

€000 €000

Mortgage loans to policyholders (Note 13.1) 2 330 2 168

Loans on policies (Note 13.2) 2 610 3 082

4 940 5 250

Loans and receivable relating to unit-linked funds 949 1 081

Other loans and receivables 3 991 4 169

4 940 5 250

13.1 Mortgage loans to policyholders

Mortgage loans to policyholders bear interest at 5,5% - 7% annually (2016: 5,5% - 7% annually), are

secured by first mortgage on the property or by bank guarantee and are repayable before or upon

maturity of the life insurance policies.

2017 2016

€000 €000

Mortgage loans to policyholders 2 883 3 276

Provision for impairment (553) (1 108)

2 330 2 168

13.2 Loans on policies

Loans on policies are secured by the surrender value of the life insurance policies and bear interest at

7,25% annually (2016: 7,25% annually).


34

14. INVESTMENTS AND LIABILITIES OF SUPERANNUATION AND MANAGED PENSION

FUNDS

14.1 Investments of superannuation and managed pension funds

The assets of the superannuation and managed pension funds are presented below:

2017 2016

€000 €000

Debt securities 5 288 5 145

Equity shares 7 403 7 211

Multi asset funds 3 504 3 198

Money market funds - 483

16 195 16 037

Bank deposits (Note 9) 980 468

17 175 16 505

The shares at the above table includes the shares held by the retirement and pension funds of Universal

Golf Enterprises Plc, a subsidiary company of the Group, at their fair value. For the purposes of the consolidated financial statements this investment has been eliminated and the assets and liabilities of

Universal Golf Enterprises Plc are presented in the appropriate lines in the consolidated statement of financial position.

14.2 Liabilities of superannuation and managed pension funds

The movement of the superannuation and managed pension funds is presented below:

2017 2016

€000 €000

1 January 16 505 16 185

Employer’s and members contribution 924 881

Income from investments 15 15

Payments to retired members (1 084) (1 089)

Administrative expenses (49) (46)

Profit / (Loss) on sale of investments 185 (7)

Profit from the change in fair value of investments 679 566

31 December 17 175 16 505

15. PREMIUMS RECEIVABLE AND OTHER INSURANCE RECEIVABLES

2017 2016

€000 €000

Premiums receivable 4 985 2 877

Amount receivable from insurance agents 135 81

Amount receivable from reinsurers 11 801 449

16 921 3 407

The above amounts are receivable within one year and bear no interest.

The amounts receivable from reinsurers include their share in claims as presented in note 21 and are

shown net of the amounts payable to them.


35

16. ASSETS LINKED WITH INSURANCE FUNDS

2017 2016

€000 €000

Assets

Debt securities 40 395 35 214

Equity shares 69 759 63 209

Multi asset funds 15 196 23 068

Money market funds 14 126 13 054

139 476 134 545

Investment properties (Note 11) 63 666 63 654

Cash and deposits at banks (Note 9) 19 414 16 625

222 556 214 824

The shares at the above table, in addition to the equity shares presented in note 12.2, also include the

shares held by the insurance funds to the Universal Golf Enterprises Plc, a subsidiary company of the

Group, at their fair value. For the purposes of the consolidated financial statements this investment has

been eliminated and the assets and liabilities of Universal Golf Enterprises Plc are presented in the

appropriate lines in the consolidated statement of financial position.

17. INVENTORIES

Inventories consist of properties that the Group owns and intends to develop and sell before or after the completion of their construction.

These properties are owned by the wholly owned subsidiary Universal Golf Enterprises Plc which was

established to develop real estates for sale as part of its ordinary operations. Therefore these properties are presented as inventories.

The insurance investment funds of the Group and the retirement and pension funds participate in the

share capital of Universal Golf Enterprises PLC. For fund value estimation these shares are measured at

fair value.


36

18. PROPERTY AND EQUIPMENT

2017

Properties Equipment Total

€000 €000 €000

Cost or fair value

1 January 18 340 6 241 24 581

Additions 21 178 199

Disposals and write-offs - (45) (45)

Revaluation (201) - (201)

31 December 18 160 6 374 24 534

Depreciation

1 January 1 413 5 761 7 174

Charge for the year 141 172 313

Disposal and write-offs - (45) (45)


31 December 1 413 5 888 7 301

Net book value

31 December 16 747 486 17 233

All properties are owned and used for the Group’s operations. All properties were revalued in 2017 by

independent valuers at fair value. The accumulated appreciation as at 31 December 2017 from the revaluation is included in the revaluation reserves (note 26) and amounting to €8 645 000 (2016:

€8 771 000).

2016

Cost or fair value

1 January 19 224 6 157 25 381

Additions 70 207 277

Disposals and write-offs - (123) (123)


Transfer of property to investment property (880) - (880)

31 December 18 340 6 241 24 581

Depreciation

1 January 700 5 711 6 411

Charge for the year 177 170 347

Disposal and write-offs - (120) (120)

Transfer of property to investment property 713 - 713


31 December 1 413 5 761 7 174

Net book value

31 December 16 927 480 17 407


37

The carrying value of properties of the Group based on the cost less accumulated depreciation, would

have been €7 152 000 (2016: €7 272 000). Properties include land amounting to €6 891 000 (2016: €7 291 000) for which no depreciation is recognised.

Depreciation of properties and equipment for the year is included in operating expenses of insurance

operations (note 4) in the consolidated statements of income for each insurance sector.

Description of valuation techniques and inputs used in measuring the fair value of properties

Category Technical valuation Significant

non-observable inputs Variation of values

(average)

2017 2016

Offices

Comparative market method and Method of income capitalisation

Annual rent valuation per sq.m. Rental yield

€40-€354

5,00%-6,00%

€66-€186

5,00%-6,00%

Annual estimated fair value per sq.m.

€1 039 - €2 912

€1 075 - €2 967

Area in sq.m.

Total 12 502

Total 12 502


Existing

Existing

19. INTANGIBLE ASSETS

Software

2017 2016

€000 €000

Cost

1 January 6 278 6 240

Additions 59 39

31 December 6 337 6 279

Amortisation

1 January 4 787 4 355

Charge for the year 453 432

31 December 5 240 4 787

Net book value

31 December 1 097 1 492

20. CREDITORS AND ACCRUALS

2017 2016

€000 €000

Creditors 972 998

Expenses due 914 1 290

Provisions for expenses 414 420

2 300 2 708


38

The creditors represent amounts payable within 12 months in the normal course of business of the Group

and do not bear interest.

21. INSURANCE LIABILITIES

2017 2016

€000 €000

Amount due regarding policyholders’ claims 27 203 11 575

Amount payable to insurance intermediaries 163 40

Amounts payable to reinsurers

- Life insurance and annuity business 242 30

- Accident and health insurance business 1 060 490

Deposits by reinsurers

- Life insurance and annuity business 2 353 2 645

- Accident and health insurance business 5 952 5 250

36 973 20 030

The movement in claims payable to policyholders is as follows:

22. UNAPPROPRIATED SURPLUS OF LIFE INSURANCE BUSINESS

The movement in the unappropriated surplus is as follows:

2017 2016

€000 €000

1 January 707 698

Surplus for the year before distribution 5 447 3 802

Transfer to the results of life insurance and annuity business (net) (5 100) (3 450)

Appropriation to policies with Discretionary Participation Features (DPF) (Note 23) (319) (343)

31 December 735 707

Gross claims Reinsurers’ share Net claims

2017 2016 2017 2016 2017 2016

€000 €000 €000 €000 €000 €000

1 January 11 575 13 758 (432) (1 125) 11 143 12 633

Increase in amount due regarding life policyholders’ claims 55 237 36 000 (23 661) (1 650) 31 576 34 350

Settlement of amount due regarding life policyholders’ claims (39 609) (38 183) 23 562 2 343 (16 047) (35 840)

31 December 27 203 11 575 (531) (432) 26 672 11 143


39

The unappropriated surplus is presented separately in the Consolidated Income Statement of Life

Insurance Business and Annuities and distributed to shareholders and to policyholders with discretionary

participation features at the discretion of the Board of Directors, taking into account the actuary’s

recommendation.

23. INSURANCE CONTRACT LIABILITIES

The life insurance contracts liabilities are analysed as follows:

Insurance

contract liabilities Reinsurers’ share Net liabilities

2017 2016 2017 2016 2017 2016

€000 €000 €000 €000 €000 €000

Life insurance policies 273 271 265 239 (5 552) (3 073) 267 719 262 166

Accident and health insurance policies 14 352 12 470 (9 863) (8 512) 4 489 3 958

Total insurance contracts liabilities 287 623 277 709 (15 415) (11 585) 272 208 266 124

Insurance contract liabilities Reinsurers’ share Net liabilities

2017 2016 2017 2016 2017 2016

€000 €000 €000 €000 €000 €000

With fixed and guaranteed terms 13 166 10 621 (4 931) (2 487) 8 235 8 134

With Discretionary Participation Features (DPF) 19 826 19 361 - - 19 826 19 361

Without DPF 240 279 235 257 (621) (586) 239 658 234 671

Total life insurance contracts liabilities 273 271 265 239 (5 552) (3 073) 267 719 262 166


40

The movement in the life insurance contracts liabilities is as follows:

The accident and health insurance contracts liabilities are analysed as follows:


2017 2016 2017 2016 2017 2016

€000 €000 €000 €000 €000 €000

1 January 265 239 263 880 (3 073) (2 652) 262 166 261 228

Premiums received 82 359 45 457 (28 808) (3 806) 53 551 41 651

Payments for death claims, surrenders and maturities (55 237) (36 000) 21 185 1 650 (34 052) (34 350)

Management charges (18 494) (11 534) - - (18 494) (11 534)

Adjustment due to change in assumptions (2 734) (1 936) - (219) (2 734) (2 155)

Return on unit-linked investments 5 853 5 773 - - 5 853 5 773

Appropriation of surplus to insurance contracts with DPF 319 343 - - 319 343

Diversification experience requirements and benefits and other movements (4 034) (744) 5 144 1 954 1 110 1 210

31 December 273 271 265 239 (5 552) (3 073) 267 719 262 166

Insurance

contract liabilities Reinsurers’ share Net liabilities

2017 2016 2017 2016 2017 2016

€000 €000 €000 €000 €000 €000

Provision for reported claims 5 666 5 310 (4 174) (3 935) 1 492 1 375

Provision for claims incurred but not reported (Ι.Β.Ν.R.) 3 070 2 113 (2 260) (1 538) 810 575

Total provision for claims 8 736 7 423 (6 434) (5 473) 2 302 1 950

Provision for claims management costs 262 297 - 262 297

Provision for unearned premiums 5 354 4 750 (3 429) (3 039) 1 925

1 711

Total accident and health insurance contracts liabilities 14 352 12 470 (9 863) (8 512) 4 489 3 958


41

The provision for reported claims of accident and health insurance business and claims incurred but not

reported are analysed as follows:

The provision for unearned premiums of accident and health insurance business is analysed as follows:

24. INSURANCE CONTRACTS LIABILITIES AND REINSURANCE-TERMS, CONDITIONS,

ASSUMPTIONS AND SENSITIVITIES

Terms and conditions Life insurance contracts Life insurance contracts offered by the Group include whole life, term insurances, endowment, annuities and unit-linked policies. In addition there is a choice of supplementary benefits for disability, accidental

death, dread disease and medical expenses.

Whole life insurance policies are conventional products where lump sum benefits are payable on death and which attain surrender value over the duration of the contract.

Term insurance policies refer to plans with fixed duration aiming to provide death benefits. In case of death within the period of cover, the sum assured is paid. On maturity these plans expire with no value.

Endowment insurance policies refer to fixed duration plans where the sum assured is paid in case of

death during the period of cover or upon expiration of the policy.

Annuities refer to plans where periodic payments begin at a predetermined age and continue for life.

Unit linked insurance policies refer to plans (whole life or with fixed duration) where the amount payable

upon death is the greater of the chosen sum assured and the value of the units allocated to the policyholder.


2017 2016 2017 2016 2017 2016

€000 €000 €000 €000 €000 €000

1 January 7 423 5 991 (5 473) (4 409) 1 950 1 582

Provision for the year 33 670 29 705 (24 563) (21 402) 9 107 8 303

Payments for claims during the year (32 357) (28 273) 23 602 20 338 (8 755) (7 935)

31 December 8 736 7 423 (6 434) (5 473) 2 302 1 950


2017 2016 2017 2016 2017 2016

€000 €000 €000 €000 €000 €000

1 January 4 750 4 503 (3 039) (3 062) 1 711 1 441

Premiums:

- written during the year 41 658 36 324 (30 337) (26 445) 11 321 9 879

- earned during the year (41 055) (36 077) 29 947 26 468 (11 108) (9 609)

31 December 5 353 4 750 (3 429) (3 039) 1 924 1 711


42

Discretionary Participating Features (DPF) of life insurance contracts

Certain insurance policies include Discretionary Participation Features (DPF). A DPF is defined as the contractual right to receive additional benefits supplementary to the guaranteed benefits:

(a) that may form an important part of the total contractual benefits, (b) the amount of which is annually declared by the Group following the actuarial valuation of the

liabilities, and

(c) which are based on surplus of life insurance business.

Accident and health insurance contracts The Group provides health plans that offer various options as to the type (in-hospital or outpatient), the

amount and the geographical location of the cover.

In addition, the Group writes personal accident policies that offer insurance cover in case of accidental death or disability following an accident.

Key assumptions Material judgment by the Group’s management is required in the choice of assumptions and in

determining the insurance contracts liabilities.

The assumptions used are based on past experience, current internal data and conditions and on external market data which reflect current market prices and other published information. Assumptions are

adopted at each valuation date and are periodically reassessed in order to maintain a realistic and reliable basis for the actuarial valuation.

For insurance contracts estimates are made in two stages: At inception of the contract, the Group determines the assumptions in relation to future deaths, voluntary terminations, investment returns and

administration expenses. Subsequently, at each reporting date, an actuarial valuation is conducted to determine whether the liabilities are adequate in the light of current estimates.

The key assumptions to which the estimation of liabilities is particularly sensitive are as follows:

Mortality rates Assumptions are based on standard international mortality tables, according to the type of insurance

contract. In addition a study is conducted of historical mortality experience (actual deaths) for comparison purposes and if this data is considered adequate and thus statistically reliable, then it is incorporated into

the abovementioned tables.

An increase in mortality rates will lead to a larger number of claims and in a shorter than expected period of time which will increase the expenditure and reduce profits for the shareholders.

Investments return and discount factor The weighted average rate of return is derived based on the assets that back liabilities, consistent with

the long term asset allocation strategy of the Group. These estimates are based on current market returns as well as expectations about future economic and financial developments.

An increase in investment returns will lead to increased profits for the shareholders.

Administration expenses Operating expense assumptions reflect the projected costs of maintaining and servicing the in force

policies and associated overhead expenses and are based on the actual expenses of the Group, taking into account the legislative provisions for calculating insurance contracts liabilities. Assumptions are also

made with regard to the rate of increase of expenses in relation to the rate of inflation.

An increase in the level of expenses will result in a reduction of profits for the shareholders.


43

Persistency (Lapses) Every year an analysis is performed of the percentage of terminated policies, using actual data up to the preceding year. These percentages may differ according to the type and duration of the plan. According

to the Cyprus Laws on Insurance Services and Other Related Issues, no assumptions are made in the actuarial valuation for the percentage of terminations.

The assumptions that have the greatest effect on the consolidated statement of financial position and the consolidated statement of comprehensive income are listed below:

Life business assumptions Mortality rates Discount factor Administration

expenses

2017 2016 2017 2016 2017 2016

Policies with fixed and guaranteed benefits

55% Α67/70

55% Α67/70

1,80%

1,80%

€81

€94

Policies with DPF 55% Α67/70 55% Α67/70 1,00% 1,00% €81 €94

Policies without DPF 55% Α67/70 55% Α67/70 1,80% 1,80% €81 €94 Sensitivity of results

The table below presents the sensitivity of results to the changes in assumptions that have the greatest

effects.

Change in assumption

Increase/(decrease) in profit and equity

2017 2016

% €000 €000

Mortality

- Increase 10 (602) (663)

- Decrease 10 376 460

Discount factor

- Increase 1 3 098 3 550

- Decrease 1 (4 582) (5 232)

Administration expenses

- Increase 10 (2 275) (2 988)

- Decrease 10 1 788 2 401

25. SHARE CAPITAL

2017 2016

€000 €000

Authorised

16 000 000 shares of €1 each 16 000 16 000

Issued and fully paid

Shares of €1 each 14 036 13 789

Increase of share capital from dividend reinvestment 267 247

14 303 14 036


44

At an extraordinary general meeting held on 19 December 2017 it was decided to distribute an interim

dividend from 2015 earnings of €0,102 per ordinary share for the total amount of €1 431 693, by issuing

Company’s shares. The issued price was €5,27 per share, based on the calculated Embedded Value of the

Company as at 30 September 2017.

In cases when calculating the number of shares granted to each shareholder as shown above resulted is a

fractional number, then if this fractional number was less than ½ it was ignored while in the cases it was

equal to or greater than ½ then a whole additional share was given.

The beneficiaries of the interim dividend were those who held shares as at 27 December 2017. The

interim dividend in the form of shares was paid to shareholders on 29 December 2017.

As a result of dividend reinvestment 267 146 shares were issued and the issued and fully paid up share

capital of the Company increased by €267 146. From the difference between the nominal value and the

issued price of the new shares a share premium was recognised amounting to €1 140 733.

26. REVALUATION RESERVES AND RETAINED PROFITS

The revaluation reserves are the difference between fair value and cost for the properties used for the

Group's operations and the deferred tax arising from the revaluation.

Retained profits

The retained profits are the only reserve that is distributable as dividend.

As from 1 January 2003, companies which do not distribute at least 70% of their profits after tax, as

defined by the Special Contribution for the Defence of the Republic Law, during the two years after the end of the year of assessment to which the profits refer, will be deemed to have distributed this amount

as dividend. Special contribution for defence at 17% (2016: 17%) will be payable on such deemed dividend distribution. Gains are excluded to the extent that these are attributable to shareholders who are

not tax residents of Cyprus and hold shares in the Group either directly and / or indirectly by the end of the period of two years from the end of the tax year in which the profits refer to. The amount of this

deemed dividend distribution is reduced by any actual dividend paid for the year in which the profits. This

special contribution for defence is paid by the Group on behalf of the shareholders.

Revaluation reserves

2017 2016

€000 €000

1 January 8 771 8 676

Revaluation of fixed assets (60) 103

Deferred tax (66) (8)

31 December 8 645 8 771


45

27. OPERATING LEASES AND CAPITAL COMMITMENTS

Commitments under non-cancellable operating leases for properties are as follows:

2017 2016

€000 €000

Future minimum lease payments:

- within one year 174 175

- between two and five years 147 147

- after five years 157 157

478 479

The commitments under operating leases are subject to the provisions of the relevant operating lease agreements. These agreements contain provisions for future adjustments on the lease amounts. In

addition to the above, on the expiration of the lease period the Group has the right for renewal.

The commitments arising from agreements of capital expenditure for the Group amounting to €173 000

(2016: €290 000).

28. NET CASH FLOW FROM OPERATING ACTIVITIES

Note 2017 2016

€000 €000


Adjustments for:

Investment income (1 253) (1 277)

Amortisation of intangible assets 19 453 432

Depreciation of property and equipment 18 313 347

Provision for impairment of inventory 2 403 -

Provision for impairment of amount due 194 -

(Profit) / loss on disposal and write-off of property and

equipment and intangible asset (2) 4

Loss from sale of investments properties - 4

Decrease in the fair value of investments

and profits on sale of investments (6 752) (6 711)

Decrease in the fair value of investment properties 11 69 1 119

Bank loan interest - 150

(1 522) (1 522) Change in: Increase in unappropriated surplus of life insurance business

23 28 9

Increase in insurance contracts liabilities 14, 22 10 583 3 407 Increase in reinsurers’ share in insurance contracts liabilities 24 (3 830) (1 462)

Creditors and accruals 21 (403) 277

Premiums and other insurance receivables 16 (13 515) 927

Insurance liabilities 22 16 943 (2 313)

Debtors and prepayments 10 1 098 36

Cash flow from / (for) operating activities 9 382 (3 579)

Income tax paid (1 397) (875)

Net cash flow from / (for) operating activities 7 985 (4 454)


46

29. RISK MANAGEMENT FROM INSURANCE OPERATIONS AND FINANCIAL INSTRUMENTS

The Group is exposed to a variety of risks, as part of its normal operations from insurance operations with financial instruments held and these are discussed below. These risks are monitored on a systematic basis

and all the necessary measures are being taken to prevent undue risk concentrations.

Risk arising from insurance business

The risk under an insurance contract is the risk that an insured event will occur including the uncertainty

of the amount and timing of any resulting claim. For risks from insurance operations such estimates are

created to meet adequately the obligations under the Group’s insurance policies, the establishment of actuaries. The principal risk under such contracts is that the actual claims and benefit payments will

exceed the carrying amount of insurance liabilities.

This risk is influenced by the frequency and severity of claims and by the risk that actual benefits paid will

be greater than originally estimated.

The risk exposure is limited by dispersion on a large portfolio of insurance contracts and by the careful selection and implementation of underwriting strategies and guidelines, also limited by the use of

reinsurance arrangements.

Although the Group has entered into reinsurance arrangements, it is not relieved of its direct obligations to its policyholders and thus a credit exposure exists with respect to reinsurance ceded, to the extent that

any reinsurer is unable to meet its obligations assumed under such reinsurance agreements. For this reason the Group monitors regularly the credit rating of the reinsurance companies with which it

cooperates through their financial results and their credit rating by well known agencies and takes all necessary steps so that this risk is minimised.

Life insurance contracts The main factors affecting the frequency of claims are epidemics, widespread changes in lifestyle and

natural disasters.

The Group’s underwriting strategy is designed to ensure that risks are well diversified in terms of type of risk and level of insured benefits. This is largely achieved through the use of medical screening in order to

ensure that pricing takes account of current health conditions and medical history, regular review of actual claims experience and product pricing. The Group has the right not to renew individual policies, to impose

deductibles or to reject the payment of fraudulent claims.

Accident and health insurance contracts The most important factors affecting accident and health contracts result from changes in lifestyle,

climate and environmental changes.

The risks are reduced by following a strict underwriting policy and by investigating for possible fraudulent

claims.

Credit risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation.


47

Maximum exposure to credit risk The table below shows the maximum exposure to credit risk:

Policy loans and mortgage loans are fully secured by the value of insurance policies and mortgages on

properties respectively.

Debtors include amounts owed to the Group arising from the sale of property which is not transferred until

paid.

Premiums receivable are secured by the surrender value of insurance policies.

The table below shows the exposure to credit risk:

2017 2016

Unit Unit

Linked Other Total Linked Other Total

€000 €000 €000 €000 €000 €000

Debt securities (Note 12.1 and 16) 40 395 10 080 50 475 35 214 8 289 43 503

Cash and cash equivalents (Note 9 and 14) 19 414 5 818 25 232 16 626 3 130 19 756

Policy loans (Note 13.2) 949 1 661 2 610 1 081 2 001 3 082

Mortgage loans (Note 13.1) - 2 330 2 330 - 2 168 2 168

Debtors (Note 10) - 2 757 2 757 - 3 868 3 868

Reinsurers’ share in insurance contract liabilities (Note 24) - 15 415 15 415 - 11 585 11 585

Premium receivable and other insurance receivables (Note 16) 16 256 665 16 921 3 263 144 3 407

77 014 38 726 115 740 56 184 31 185 87 369

2017

Neither past due nor

impaired Impaired Total

€000 €000 €000


Advances - 90 90

16 921 105 17 026

2016


Advances - 90 90

3 407 781 4 188


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Exposure to credit risk by credit rating The table below provides information regarding the credit risk exposure of the Group by classifying assets

according to their credit rating of bond issuers and banks:

2017

Aaa -Aa3 A1-A3 Ba1 – Ba3 B1-B3 Caa1- Caa3 Unrated Total

€000 €000 €000 €000 €000 €000 €000

Debt securities - - - - - 50 475 50 475 Cash and deposits with banks 16 516 - - - 9 400 1 446 27 362

16 516 - - - 9 400 51 921 77 837

2016

Debt securities - - - - - 43 503 43 503 Cash and deposits with banks - 8 444 4 157 - 7 668 1 389 21 658

- 8 444 4 157 - 7 668 44 892 65 161 Liquidity risk

Liquidity risk is the risk that the Group is unable to fully or promptly meet payment obligations as and

when they fall due. This risk includes the possibility that the Group may have to raise funding at high cost

or sell assets at a discount to fully and promptly satisfy its obligations. The Group’s business requires a steady flow of cash to meet payment obligations to policyholders and

associates. The basic source of liquidity for the Group are premiums received, disposals and income from

investments, cash and cash equivalents, the bank overdraft and the bank loan. To provide the satisfactory cash inflow to cover future payment obligations the Group invests in assets

with the same maturity profile as the maturity of insurance contracts liabilities. The following table presents the Group’s financial liabilities by remaining contractual maturity at 31 December 2017 and at 31 December 2016. The analysis was based on undiscounted cash flows analysed

in time bands according to the number of days remaining from 31 December to the contractual maturity date. Within

one year

€000

1-5 years €000

6-15 years €000

After more than 15

years €000

Without expiry

date €000

Unit- Linked

€000 Total €000

2017

Bank overdraft 2 643 - - - - - 2 643

Insurance contract liabilities 19 953 15 734 7 058 5 361 15 928 223 589 287 623

Insurance liabilities 28 305 3 094 1 388 1 054 3 132 - 36 973

Creditors 2 166 - - - - - 2 166

53 067 18 828 8 446 6 415 19 060 223 589 329 405

2016

Bank overdraft 1 772 - - - - - 1 772

Insurance contract liabilities 17 994 12 477 8 164 5 912 15 913 217 249 277 709

Insurance liabilities 12 113 2 326 1 522 1 102 2 967 - 20 030

Creditors 2 321 - - - - - 2 321

34 200 14 803 9 686 7 014 18 880 217 249 301 832

Market risk

Market risk is the risk of adverse movements in the rates of exchange between currencies, in the level of

interest rates and the current prices of investments. The Group’s profitability is not affected to the extent

that such variations relate to investments held for unit-linked investment plans. For the remaining


49

investments relating to insurance business this risk is kept at low levels through diversification, both

geographically and through investment in companies operating in different sectors of the economy.

Equity shares price risk

The risk of loss from changes in the price of equity shares arises when there is an unfavourable change in

the price of equity shares held by the Group. The majority of investments in equity shares as at 31

December 2017 and 2016 were held in recognized foreign stocks. Moreover, risk reduction is achieved

through diversification in various sectors.

Change in

index

Effect on

profit before

tax

Effect on

profit after

tax

2017 € 000 € 000

Cyprus Stock Exchange +5% 140 126

-5% (140) (126)

Other Stock Exchanges +5% 249 225

-5% (249) (225)

2016

Cyprus Stock Exchange +5% 128 115

-5% (128) (115)

Other Stock Exchanges +5% 166 149

-5% (166) (149)

Investments in other exchanges include direct and indirect investments in mutual funds that are traded on

European and US Exchanges.

Interest rate risk Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate

because of changes in market interest rates. This risk is mainly focused on the Group’s investments. Changes in interest rates do not affect profitability if they relate to unit-linked investment plans.

The Group reduces its exposure to this risk by investing in a combination of fixed interest and variable interest financial assets and by regular monitoring of assets and liabilities positions.

On 31 December 2017 if interest rates on all interest bearing financial instruments and obligations in any currency increased / decreased by 0,5%, with other things being equal, the Group profit after tax for the

year, and consequently its equity, would show an increase / decrease of €64 000 (2016: €54 000).

Currency risk Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate

because of changes in foreign exchange rates.

The Group's exposure to currency risk is not significant.


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30. ANALYSIS OF ASSETS AND LIABILITIES BY EXPECTED MATURITY DATE

The table below presents an analysis of assets and liabilities based on expected maturity or redemption date:

2017 Within one

year More than

one year Total

€000 €000 €000

Assets

Cash and cash equivalents 2 130 - 2 130

Debtors and prepayments 2 757 - 2 757

Investments of insurance operations and superannuation

managed pension funds

Equity shares - 70 017 70 017

Debt securities 993 49 482 50 475

Multi asset funds - 18 704 18 704

Money market fund 14 126 - 14 126

Loans to policyholders 117 2 213 2 330

Loans on policies 392 2 218 2 610

Deposits with banks 25 232 - 25 232

Reinsurers’ share of insurance contracts liabilities 1 738 13 677 15 415

Premiums receivable and other insurance receivables 16 921 - 16 921

Inventories - 39 420 39 420

Property and equipment - 17 233 17 233

Intangible assets - 1 097 1 097

64 406 214 061 278 467

Liabilities

Bank overdraft 2 643 - 2 643

Creditors and accruals 2 300 - 2 300

Insurance liabilities 28 390 8 583 36 973

Tax payable 257 - 257

Deferred tax - 7 748 7 748

Unallocated surplus life insurance business 735 - 735

Insurance contracts liabilities 89 623 198 000 287 623

Liabilities of superannuation and managed pension funds 17 175 (670) 16 505

141 123 213 661 354 784


51

2016 Within one

year More than one year

Total

€000 €000 €000

Assets

Cash and cash equivalents 1 902 - 1 902

Debtors and prepayments 3 868 - 3 868

Investments of insurance operations and superannuation

managed pension funds

Equity shares - 60 392 60 392

Debt securities - 43 503 43 503

Multi asset funds - 26 270 26 270

Money market fund 13 537 - 13 537

Loans to policyholders 108 2 060 2 168

Loans on policies 462 2 620 3 082

Deposits with banks 19 756 - 19 756 Investments relating to superannuation and managed pension funds

Reinsurers’ share of insurance contracts liabilities 1 334 10 251 11 585

Premiums receivable and other insurance receivables 3 407 - 3 407

Inventories - 41 408 41 408

Property and equipment - 17 407 17 407

Intangible assets - 1 492 1 492

44 374 205 403 249 777

Liabilities

Bank overdraft 1 772 - 1 772

Creditors and accruals 2 708 - 2 708

Insurance liabilities 12 113 7 917 20 030

Tax payable 218 - 218

Deferred tax - 7 781 7 781

Unappropriated surplus of life insurance business 707 - 707

Insurance contracts liabilities 82 654 195 055 277 709

Liabilities of superannuation and managed pension funds

funds 16 505 (320) 16 185

116 677 210 433 327 110

31. CAPITAL MANAGEMENT

The Directive 2009/138/EC of the European Parliament and the Council and the relevant Regulations concerning the aquisition and pursuit of Insurance and Reinsurance businesses (Solvency II) came into

force on 1 January 2016. The new Directive requires significantly enhanced information both in

quantitative and qualitative terms and is divided into three pillars:

Pillar I: Quantitative requirements - includes calculation of solvency capital requirements,

technical provisions and principles for measurement of assets and liabilities. Pillar II: Qualitative requirements - includes the corporate governance requirements that

guarantee the correct and prudent management of the insurance business, including the risk

management function, compliance, internal audit and actuarial function. Pillar III: Disclosure requirements - includes the requirements to disclose quantitative and

qualitative information necessary for supervisory authorities to better inform members -

consumers.


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With the implementation of the Directive, the Company manages its capital base by evaluating on a quarterly basis, the adequate coverage of the Solvency Capital Requirement with high quality own equity.

In this context, a number of actions was taken to optimize asset management and own funds, including adjusting its dividend policy, in order to be able to cover the increased quantitative capital requirements.

Additionally, the Company assesses annually the ongoing compliance with regulatory capital requirements of the Directive throughout the period of future business planning. This assessment takes into account

possible future changes in the risk profile, quantity and quality of own funds, and their composition by class and how this can change during the period of future business planning. The results of the own risk

assessment were taken into account for capital management, business planning and development and design of the Company's products.

32. ADDITIONAL INFORMATION TO THE INSURANCE BUSINESS INCOME STATEMENTS

Additional information is shown below based on the Accounting Directives issued according to paragraph 2

of article 87 of the Laws on Insurance Services and Other Related Issues:

Life insurance and annuity business

2017 2016

€000 €000

Individual life premiums 44 882 42 943

Group life premiums 37 477 2 515

82 359 45 458

Regular premiums 76 787 40 288

Single premiums 5 572 5 170

82 359 45 458

Non-linked life premiums:

- Without participation in profits 39 869 4 955

- With participation in profits 1 062 1 620

40 931 6 575 Premiums of unit-linked life policies for which the investment risk is borne by policyholders 41 428 38 883

82 359 45 458

Reinsurance premiums of non-linked life business 27 802 2 946

Reinsurance premiums of unit-linked life business 1 006 859

28 808 3 805

33. FAIR VALUE OF FINANCIAL INSTRUMENTS AND PROPERTIES

The Group uses the following hierarchy for determining and disclosing the fair value:

Level 1: investments measured at fair value based on quoted prices in active markets.

Level 2: investments measured at fair value based on valuation models in which all factors affecting the fair value is based on observable market data.

Level 3: investments measured at fair value based on valuation models in which the data significantly

affect the fair value are not based on observable market data. This category includes unlisted investments.


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The method used for determining the fair value of financial instruments presented at fair value using

valuation models is described in accounting policy number 16 for investments at fair value through profit or loss. These models include estimates of the Group regarding the assumptions that an investor would

use in measuring fair value. The method used for determining the fair value of property is described in notes 11 and 18.

The analysis of financial instruments and properties measured at fair value by level is shown below:

Level 1 Level 2 Level 3 Total

€000 €000 €000 €000 Financial assets and properties

2017

Equity shares 69 844 - 174 70 018

Debt Securities 49 482 994 - 50 476

Multi asset funds 18 704 - - 18 704

Money market fund 14 126 - - 14 126

Investment properties - - 110 088 110 088

Freehold Properties - - 16 748 16 748

152 156 994 127 010 280 160

2016

Equity shares 60 202 - 190 60 392

Debt Securities 42 583 920 - 43 503

Multi asset funds 26 270 - - 26 270

Money market fund 13 537 - - 13 537

Investment properties - - 110 179 110 179

Freehold Properties - - 16 927 16 927

142 592 920 127 296 270 808

Sensitivity of fair value measurement to changes in unobservable inputs

Given the uncertainties in the market, any changes in unobservable inputs may lead to measurement with

significantly higher or lower fair value. A variation of the annual lease rate of return would affect the fair

value of investment property and own property as follows:

Change in rate of annual lease rate of return Impact on fair value of

investment property

+0,05 (+5%) -7,5% to -9%

-0,05% (-5%) +9%

Any changes in unobservable inputs of unlisted shares are not expected to lead to significantly higher or

lower value compared to their fair value.

34. RELATED PARTY TRANSACTIONS

Related persons include members of the Board of Directors, spouses, minor children and companies in

which a Director holds, directly or indirectly, at least 20% of the voting rights in a general meeting.


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All transactions with Directors and their related parties are made on normal business terms.

Emoluments of Directors

2017 2016

€000 €000

Fees:

Non executive 158 150

Executive 10 10

Total fees 168 160

Emoluments in executive capacity including employer’s contributions 193 161

Total emoluments of Directors 361 321

During 2017 and 2016 there was one Executive Director.

Other transactions with related parties Mr George A. Georghiou, Vice Chairman of the Board of Directors of the Company, and his related parties

are the beneficiaries of a number of insurance contracts for which the annual premiums payable to the Company amount to €12 000 (2016: €12 000).

Mr Andreas Georghiou, a member of the Board of Directors of the Company, and his related parties are beneficiaries of a number of insurance policies for which the premiums payable amount to €0

(2016: €2 460).

Mr Constantinos Dekatris, member of the Board of Directors of the Company, and his related parties are beneficiaries of a number of insurance policies for which the premiums payable amount to €7 171 (2016:

€7 171). Mr Dekatris holds the position of the Chief Executive Officer of the Commercial General Insurance

Ltd, which maintains group life policies, accident and health policies and pension plan. During 2017 Commercial General Insurance Ltd paid to the Company premiums amounting to €141 544

(2016: €133 254).

Mr Alexis Ph. Photiades, a member of the Board of Directors of the Company, and his related parties are the beneficiaries of a number of insurance contracts for which the annual premiums payable to the

Company amount to €33 539 (2016: €32 000).

Mr Pavlos Ph. Photiades, a member of the Board of Directors of the Company, and his related parties are

the beneficiaries of a number of insurance contracts for which the annual premiums payable to the Company amount to €14 000 (2016: €14 000).

Mr Stavros Christodoulides, a member of the Board of Directors of the Company, and his related parties

are the beneficiaries of a number of insurance contracts for which the annual premiums payable to the Company amount to €15 800 (2016: €2 520).

Mr Andreas Kridiotis, a member of the Board of Directors of the Company (until 2 February 2018), and his related parties are the beneficiaries of a number of insurance contracts for which the annual premiums

payable to the Company amount to €12 000 (2016: €12 000).

The Group received from companies in the Photiades Group premiums of life and accident and health

business amounting to €401 000 (2016: €480 000). The Group also acted as an insurance intermediary for insuring assets of Photiades Group and earned commission amounting to €84 623 (2016: €80 000).

Embedded Value

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As of 1993, in addition to the annual statutory actuarial valuation which is reflected in the

audited financial statements, Universal Life reports the results of the Company using the embedded value method. The embedded value of a life insurance company is defined as the sum of the value of shareholders’

assets and the present value of the projected future transfers to the shareholders arising out of future profits. No allowance is made for profits to be generated out of future new business (goodwill). The calculation of the projected future cash flows is based on assumptions of investment return, mortality and morbidity, lapse rates, commissions and management expenses, tax and any other factors which contribute positively or negatively in the risk management and profitability of a life insurance company. The assumptions are set by allowing for the economic conditions and the Company’s own recent experience. The projected future cash flows are discounted back to their present value using a risk discount rate which represents the shareholders’ expected return from an investment in a life insurance company.

The embedded value of the Company is calculated at the beginning and at the end of the year and the

change in value, adjusted for any transfers to or from the shareholders, represents the embedded value

earnings of the Company.

2017 Results

The table below gives a breakdown of the Group’s embedded value as at 31 December 2017. The

corresponding figures for 2016 are given for comparison purposes. The risk discount rate used for the 2017 provisions was 7% per annum (2016:7,50%).

2017 2016

€000 €000

Value of net assets as per the financial statements

prepared under IFRS 33 481 32 815

Difference between fair value and cost of real estate of Universal Golf Enterprises Plc 2 091 2 196

Undistributed surplus of life insurance business 735 707

Value of policies in force 36 022 37 080

Embedded Value 72 329 72 798

The change in the embedded value in successive years plus the dividends paid to shareholders within the

year represents the embedded value profits / losses for the year. The embedded value losses for 2017 is €469 000 (2016: €1 918 000).

The table below shows the key elements of the results for 2017 as well as for 2016 under the traditional accounting standards method compared to the alternative embedded value method.

As per audited financial

statements Embedded Value basis

2017 2016 2017 2016

€000 €000 €000 €000

Profit / (losses) for the year after tax 1 799 811 (469) (1 918)

Shareholders’ interest 33 481 32 815 72 329 72 798

Profit / (loss) per share - cent 12,6 5,8 (3,3) (13,7)

Net asset value per share - € 2,34 2,34 5,06 5,19

The embedded value was not audited by the external auditors of the Group.

Financial Report 2017 - Universal Life · Financial Highlights of the Group 2 2017 2016 2017/2016...

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