LIVE HEALTHIER, LONGER AND BETTER LIVES

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AIA INSURANCE LANKA PLCLIVE HEALTHIER,LONGER ANDBETTER LIVESANNUAL REPORT 2017

LIVE HEALTHIER,LONGER ANDBETTER LIVES At AIA, we believe in the power of insurance to make a positivedifference in people’s lives. We do this through our products andservices as well as by actively promoting the health and well-beingof our customers, employees and agents and the communities inwhich they live and work. We are committed to helping people tolive Healthier, Longer and Better lives.This mission of encouraging healthy living becomes most relevantnow, more than ever before, to Sri Lanka. With the rise of NonCommunicable Diseases (NCDs), largely attributed to poor dietaryhabits and physical inactivity, it remains an important endeavour tomotivate people to make healthy choices while supporting them inmaking the most out of life.ANNUAL REPORT 2017 1

LIVE HEALTHIER, LONGER AND BETTER LIVES CONTENTSOVERVIEWFinancial HighlightsMilestones 2017Chairman’s ReviewCEO’s Review56810MANAGEMENT DISCUSSION & ANALYSISEnvironmentRegulatory Update ReviewIndustry ReviewCustomer ReviewProduct ReviewCommunity ReviewBusiness ReviewOperations ReviewInvestment StrategyPeople ReviewFinancial rd of DirectorsSenior Management TeamThe Annual Report of the Board of DirectorsCorporate GovernanceRisk Management ReviewAudit & Compliance Committee ReportRemuneration Committee ReportRelated Party Transactions Review Committee ReportInvestment Committee ReportActuary’s ReportStatement of SolvencyStatement of Approved Assets323640466671737475767777FINANCIAL INFORMATIONFinancial CalendarCEO’s and CFO’s ResponsibilityDirectors’ Statement of Responsibility onFinancial ReportingIndependent Auditor’s ReportConsolidated Statement of Financial PositionConsolidated Income StatementConsolidated Statement of Comprehensive IncomeStatement of Changes in Equity - GroupStatement of Changes in Equity - CompanyConsolidated Statement of Cash FlowsLong Term Insurance Statement ofFinancial Position - SupplementalInsurance Revenue AccountNotes to the Consolidated Financial Statementsand Significant Accounting Policies80818283848586878889909091OTHER INFORMATIONQuarterly Analysis 2017Quarterly Analysis 2016Five Year SummaryShare InformationOur Local ReachDistribution NetworkGlossaryNotice of MeetingForm of ProxyCorporate Information2 AIA INSURANCE LANKA PLC138139140142145146149154155IBC

Our VisionBeing the pre-eminent Life Insurance Provider in Sri Lanka.Our PurposeTo play a leadership role in driving economic and social developmentin Sri Lanka.Our HistoryIn December 2012, AIA Company Limited (“AIA”), Hong Kongacquired the entirety of the shareholding in AIA Holdings Lanka(Private) Limited, the majority shareholder who in turn holds a directholding of 87.28 per cent in AIA Insurance Lanka PLC. AIA alsoacquired a direct 5 per cent and subsequently through a voluntaryoffer a further 4.88 per cent direct holding in AIA Insurance LankaPLC in May 2013.AIA now owns an effective shareholding of 97.16 per cent in AIAInsurance Lanka PLC.Please scan the QR code toobtain an e-version of theAnnual Report 2017.ANNUAL REPORT 2017 3

LIVE HEALTHIER, LONGER AND BETTER LIVES AIA GROUP AT A GLANCEAIA IS THE LARGEST INDEPENDENT PUBLICLY LISTEDPAN-ASIAN LIFE INSURANCE GROUP – WITH APRESENCE IN 18 MARKETS ACROSS THE ASIA-PACIFICREGION.THE LARGEST LISTEDCOMPANY ON THE HONGKONG STOCK EXCHANGEWHICH IS INCORPORATED ANDHEADQUARTERED IN HONG KONGTHE SECOND LARGEST LIFEINSURER IN THE WORLD*100% FOCUSED ON ASIAPACIFIC#1 WORLDWIDE FOR MDRTMEMBERS;The standard of excellence in thelife insurance businessPRESENCE INSERVING THE HOLDERS OF MOREIN ASIA-PACIFICTHAN 30 MILLION INDIVIDUALPOLICIES18 MARKETSCHINA 1919HONG KONG 1931SINGAPORE 1931THAILAND 1938PHILIPPINES 1947MALAYSIA 1948BRUNEI 1957AUSTRALIA 1972NEW ZEALAND 1981MACAU 1982INDONESIA 1982KOREA 1987TAIWAN 1990VIETNAM 2000INDIA 2001SRI LANKA 2012MYANMAR* 2013CAMBODIA 2015* AIA has a representative office in Myanmar.OVER 16 MILLION PARTICIPATINGMEMBERS OF GROUP INSURANCESCHEMESPROVIDES PROTECTION TO PEOPLEACROSS THE REGION WITH TOTALSUM ASSURED OF OVERUS 1 TRILLIONMADE 13 MILLION BENEFITPAYMENTS DURING 2016, HELPINGCUSTOMERS AND THEIR FAMILIESTO COPE WITH CHALLENGES ATDIFFERENT LIFE STAGESNote :* Source : Bloomberg. 30 June 2017All the figures are as of November 2016,unless otherwise stated4 AIA INSURANCE LANKA PLC

OVERVIEWFINANCIAL HIGHLIGHTSFinancial Highlights - Group20172016%Total revenue(LKR mn)17,22115,07914Profit before tax(LKR mn)7,599794857Gross written premium(LKR mn)11,51110,10414Net assets(LKR mn)11,2845,366110Total assets(LKR mn)52,58446,08414Insurance liabilities(LKR mn)38,19738,188-Basic earnings per share(LKR)239.3816.61Dividend per share(LKR)50.0049.501Market capitalisation(LKR 6 : LKR 15.1 bnLKR billion1,3412016 : LKR 46.1 bnLKR billion11.3NET ASSETSLKR billion2016 : LKR 5.4 bnTotal RevenueTotal AssetsLKR billionLKR t AssetsInsurance LiabilityLKR billionLKR 55.4201611.3201750ANNUAL REPORT 2017 5

LIVE HEALTHIER, LONGER AND BETTER LIVES JANUARYAIA VITALITY, MAKING SRILANKANS HEALTHY, ONE STEPAT A TIMEThe AIA Vitality programme,the first of its kind, is the mostrewarding wellness platformin Sri Lanka, aimed at makingSri Lankans healthier, one stepat a time. It’s a science-backedwellness programme that providesparticipants with the knowledge,tools and motivation to improvetheir health.FEBRUARYAIA DECLARED A STRONG 9.46%DIVIDEND FOR ITS CUSTOMERSAIA declared a dividend of 9.46 per centfor its policyholders. It was yet anotheryear of AIA delivering impressivedividend figures to policyholders andthis consistency is testament to thestrength and outstanding investmentstrategy of AIA’s Life Fund, whichstands at LKR 32 billion. Since AIAintroduced the system of declaring anannual dividend, the amount declaredevery year has always been well abovethe guaranteed amount promised bythe Company to its policyholders. Thedividend is a significant advantage toAIA’s policyholders who are alreadyenjoying protection benefits.MARCHAIA APPOINTS DAVIDBECKHAM AS ITS GLOBALAMBASSADORAIA Group signed a multiyear agreement with DavidBeckham, under which hebecame the Company’sGlobal Ambassador. In thisnewly created role, Beckhamwill support AIA in its goal ofhelping people in the AsiaPacific region live healthier,longer, better lives.APRILAIA SRI LANKA CELEBRATES ITS PEAK PERFORMERSAIA Sri Lanka’s Annual Sales Convention for the year 2017, washeld on a grand scale with 1,300 Wealth Planners from across theisland convening to celebrate their notable achievements at theBandaranaike Memorial International Conference Hall (BMICH).Held under the theme ‘Race to the Top’, these peak performers werehonoured for their indomitable stamina in forging ahead and emergingon top of their game.MILESTONESOF 2017MAYAIA TOWER, OPENS FORBUSINESSAIA moved into its brand newHead Office building, the AIATower, located at 92, DharmapalaMawatha, Colombo 7. The move tothe new building, was testament toAIA’s deep commitment to furtherexpand its growing business inSri Lanka. The AIA Tower is acontemporary, 12 storey officebuilding, which, for the first time,allows all of AIA Sri Lanka’semployees based in Colombo theopportunity to work together underone roof. The move creates greatersynergy between functions and willof course help the growth of AIA’sbusiness.JUNE6 LIVES SAVED, THANKS TO AIA’S POSON SAFETY PROGRAMMESix lives were saved this year, thanks to AIA’s Poson Safety Programme. Now in its 24thconsecutive year, the programme aims at protecting the lives of the throngs of pilgrimstravelling to Anuradhapura, Polonnaruwa and Dambulla for Poson (One of Sri Lanka’simportant Buddhist festivals). Every year, AIA joins hands with the Sri Lanka Police, SriLanka Lifesaving, the Civil Security Division and the Sri Lanka Navy in deploying lifeguardsto watch over the reservoirs in the area, which are popular bathing and swimming spots.Over 200 lives have been saved due to this programme since its inception.6 AIA INSURANCE LANKA PLC

OVERVIEWJULYAIA HONOURED WITH PLACEIN THE GREAT PLACE TOWORK HALL OF FAMEAIA Sri Lanka takes great pridein entering ‘Sri Lanka’s BestCompanies to work for – Hall ofFame,’ as the company collectedits fifth consecutive Great Place ToWork recognition. This incredibleachievement is testament to AIA’scommitment to doing the rightthing, the right way and mostimportantly, with the right people.SEPTEMBERAIA GROUP CHIEF EXECUTIVE MET THEPRESIDENT AND PLEDGES SUPPORT TO SRILANKAMr. Ng Keng Hooi met with His Excellency thePresident Maithripala Sirisena, during his first visitto Sri Lanka since his appointment as Group ChiefExecutive and President of AIA Group. During theirmeeting, he pledged AIA’s support to Sri Lankaand reiterated AIA Group’s commitment to growingand investing in the country. He noted that AIA’sinvestment in Sri Lanka has grown considerablysince entering the market in 2012 with aninvestment of USD 109 million and expressedconfidence that the growth will continue.AUGUSTAIA AND WAYAMBA UNIVERSITY CONGRATULATE THE FIRST BATCH OF GRADUATES OFTHE DIPLOMA IN PERSONAL FINANCIAL MANAGEMENTAIA collaborated with the Wayamba University of Sri Lanka in successfully completing theDiploma in Personal Management for Wealth Planners and Wealth Planners’ Managers.This was the first time such a programme for insurance agents was carried out in a localuniversity. The 28 certificate recipients were trained under the guidance of an expert panelof lecturers from the Department of Accountancy and the Faculty of Business Studies &Finance of the Wayamba University.OCTOBERAIA PENSIONS MONTHAIA’s Easy Pensions campaign which waslaunched on 8th October, to coincide with NationalPensioners Day, also coincided with the AIAPensions Month. Now in its third consecutiveyear, the AIA Pensions Month is rolled out inOctober, with a concentrated effort to create moreawareness about the need to start planning forretirement. During this time, AIA’s nationwide teamof Wealth Planners put all their energy into guidingSri Lankans to a more secure and ideal retirement.NOVEMBERAIA VITALITY INTRODUCES CHARITY REWARDS OPTIONSAIA Vitality members were given the option of contributing their weekly reward to the LittleHearts Foundation, for children with heart disease and critical illness. This can be done bystaying active to achieve your weekly targets on AIA Vitality and selecting the ‘Donation’ optionwhen claiming rewards. Each time you do so, AIA will donate LKR 500 towards the constructionof the Critical Care Unit at the Lady Ridgeway Hospital, facilitated by the Little HeartsFoundation. By choosing to donate your rewards to this worthy cause you not only give back tothe community and support children in need but also help those kids with early heart problemsin Sri Lanka.AIA INSURANCE TOPS MDRT IN SRI LANKAAND CROSSES THE 100 MEMBER MARKAIA Sri Lanka crossed 100 MDRT (Million DollarRound Table) members for 2016, making it thefirst and only insurer in Sri Lanka to do so! AIA hadthe most number of MDRT members in Sri Lanka,with a total of 110 MDRT certificates awardedto AIA Wealth Planners and BancassuranceExecutives in 2016. This achievement istestament to the high calibre of advisors recruited,trained and employed by AIA, to provide the bestprotection and savings solutions to Sri Lankans.This is the second consecutive year that AIA topsMDRT from Sri LankaDECEMBERAIA VITALITY JOINS HANDS WITH ‘RUN FORTHEIR LIVES’ IN THE BATTLE AGAINST CANCERAfter the successful sponsorship of the ‘Run for TheirLives’ (RFTL) charity run, AIA took the partnershipfurther by encouraging its Vitality members tocontribute towards the Apeksha Cancer Hospital inMaharagama. The latest charity rewards option onAIA Vitality, allows users to make a donation towardsthe hospital. All you have to do is stay active andengaged with AIA Vitality to achieve your weeklytarget and select the ‘Donation’ option when claimingyour reward. AIA will then donate LKR 500 to theApeksha Cancer Hospital in Maharagama.ANNUAL REPORT 2017 7

LIVE HEALTHIER, LONGER AND BETTER LIVES CHAIRMAN’S REVIEWI’m pleased to report as Chairman of the Board of Directorsthat 2017 has been yet another year which signifies AIA SriLanka’s continued commitment in delivering robust growth,thus providing enhanced value to all stakeholders.The Asia Pacific region’s economic growth is driven by itsfast-growing middle class, with increasing disposable incomefuelling rapid changes in consumer behaviour including theneed for insurance. AIA is uniquely placed with its strongheritage in the Asia Pacific region; equipped with updatedtechnology and holistic customer propositions, catering to theneeds of the evolving Asia Pacific consumer. The conditions inSri Lanka are, in many respects, consistent to that of its AsiaPacific peers, and we remain optimistic of our ability to meetevolving customer needs.2017 was another strong year for AIA Sri Lanka reporting 14per cent growth in life insurance Gross Written Premiums toLKR 11,511 million.The Company recorded a consolidated after tax profit of LKR7,361 million during 2017 compared to LKR 511 million in2016. The major driver of the significant increase was thedownward shift in market interest rates during the yearcompared to an upward shift in 2016. In 2017 the 10 yearbond rate fell 230 basis points compared with an increaseof 215 basis points in 2016, which resulted in an increasein profit of LKR 6,850 million. Despite the yield movements,the operating performance of the business remained broadlystable.WILLIAM LISLECHAIRMANSTRONGER PERFORMANCEDURING THE YEAR2017 WAS ANOTHER STRONG YEAR FORAIA SRI LANKA REPORTING 14 PER CENTGROWTH IN LIFE INSURANCE GROSSWRITTEN PREMIUMS TO LKR 11,511MILLION.8 AIA INSURANCE LANKA PLC

OVERVIEWOn behalf of the Board of Directors, I wish tothank the team at AIA Sri Lanka and commendthe dedication, commitment and effort ofthe Wealth Planners, Financial PlanningExecutives, bank partners and employees forthe excellent results in 2017.The Board of Directors approved the distribution of a first andfinal dividend of LKR 91 per share from the profits earned by theCompany during 2017.On behalf of the Board of Directors, I wish to thank the team at AIASri Lanka and commend the dedication, commitment and effort ofthe Wealth Planners, Financial Planning Executives, bank partnersand employees for the excellent results in 2017.We remain focused and committed on becoming the pre-eminentlife insurer in Sri Lanka.William LisleChairmanANNUAL REPORT 2017 9

LIVE HEALTHIER, LONGER AND BETTER LIVES CEO’S REVIEWAt AIA Sri Lanka, 2017 has been a year of transformationin challenging market conditions. I would like to take thisopportunity to walk you through our journey in the last 12months. The effective and efficient execution of our long-termbusiness strategy has generated continuous momentum andled to a strong set of results in 2017.I am delighted to report that despite an uncertain marketenvironment, AIA Sri Lanka managed to deliver another strongyear in 2017. The performance was primarily attributed to theinnovative propositions catering to rapidly evolving consumerneeds.During the course of the year, we launched a new pensionsproposition, Pension Premier Gold, which targets more affluentcustomers to fulfil their retirement needs and Easy Pensionsprovides an affordable and simple product via an easy tochoose bundled solution. Our new comprehensive health andprotection proposition HealthFirst ensures individuals haveadequate financial protection for medical and hospitalisationemergencies. The re-launched savings propositionSmartBuilder Gold allows customers to save over a limitedperiod and enjoy being protected for up to 20 years.Our distribution channels have performed well. PremierAgency has benefited from upgrades to the quality of theagency force, which has resulted in improved sales qualityand enhanced customer engagement. The Bancassurancechannel continued its focus on strengthening our existing bankpartnership with NDB Bank while making rapid progress withthe newly forged partnership with DFCC Bank.PANKAJ BANERJEECHIEF EXECUTIVE OFFICERCOMMITTED TO MAKINGA DIFFERENCETHE EFFECTIVE AND EFFICIENTEXECUTION OF OUR LONG-TERMBUSINESS STRATEGY HAS GENERATEDCONTINUOUS MOMENTUM AND LED TO ASTRONG SET OF RESULTS IN 2017.10 AIA INSURANCE LANKA PLC

OVERVIEWAIA Sri Lanka was inducted into the ‘A GreatPlace to Work’ Hall of Fame having won theaccolade for five consecutive years, whichis a testament to the talent and culture ofour people and our corporate philosophy ofdeveloping and nurturing our talent.2017 marked the launch of AIA Vitality for customers in SriLanka, AIA’s science backed wellness programme which focuseson helping our customers to live healthier, longer and betterlives. Consumers at large have appreciated the concept of a lifeinsurance Company encouraging people to live a healthy life style,and rewarding them for it. The Operations and Marketing teamsinitiated its customer programmes to engage more closely withAIA Sri Lanka’s customers.I extend my sincere appreciation and gratitude to the Board ofDirectors and all my AIA Sri Lanka colleagues for their tirelessefforts, commitment and dedication during this challenging year.I thank all our business partners for their professionalism andsupport.The Company’s financial performance showed continued strengthand robustness with Gross Written Premiums of LKR 11.5 billionand consolidated profit after tax of LKR 7,361 million during 2017.The significant contributor to the consolidated profit after tax forthe year was the transfer of the life surplus, which is recognisedannually post an Actuarial valuation of the Life Insurance business.The major driver of the significant life surplus, as referencedin the Chairman’s Review, was the downward shift in marketinterest rates during the year. As per the regulations issued bythe Insurance Regulatory Commission of Sri Lanka, this produceda surplus due to significant movements in assets and liabilitieswhich are measured at fair value under the Risk Based Capitalregime for solvency and an associated reduction in risk capitalcharges.Best Regards,To our customers, I extend my gratitude for their consistentconfidence and faith in our capabilities, products and services.Pankaj BanerjeeChief Executive OfficerAIA Sri Lanka was inducted into the ‘A Great Place to Work’ Hall ofFame having won the accolade for five consecutive years, whichis a testament to the talent and culture of our people and ourcorporate philosophy of developing and nurturing our talent. 2017also marked a milestone year as AIA Sri Lanka moved into its newand modern headquarters, AIA Tower.I’d like to take this opportunity to recognise and congratulateour Wealth Planners and Bancassurance Financial PlanningExecutives for the excellent results AIA Sri Lanka has delivered for2017 following their relentless perseverance, enhanced focus andcommitment.ANNUAL REPORT 2017 11

LIVE HEALTHIER, LONGER AND BETTER LIVES LIVE HEALTHIER12 AIA INSURANCE LANKA PLC

MANAGEMENT DISCUSSION AND ANALYSISANNUAL REPORT 2017 13

LIVE HEALTHIER, LONGER AND BETTER LIVES MANAGEMENT DISCUSSION & ANALYSISAIA Sri Lanka delivered a strong set of results in 2017, amidst a very challengingexternal environment. The challenge from the external environment was evidentwith the lower than projected economic growth, natural disasters that impacted thegeneral living conditions of the population and the sluggish consumer demand. Thedrought that prevailed for 20 months until October 2017 across the key agriculturaldistricts and the severe floods that inundated most parts of the Western andSouthern provinces during mid 2017 had a bearing on the socio-economic conditionsin the country. The achievements of AIA Sri Lanka are evident in the performance of2017 and the foundation that is being built to support the growth aspirations of thebusiness.Asia’s dynamic economies continue to lead global growth,withstanding widespread concerns regarding protectionism, witha rapidly growing ageing population and low productivity. Asdomestic consumption continues to become a significant factordriving economic growth, the shift in spending habits and thegrowing middle class, is leading to a step change in life insurancedemand across the region. The economic performance of SriLanka during 2017 and the external environment within which AIASri Lanka operated is briefly discussed in this report.The report presents AIA Sri Lanka’s performance during the yearwith a robust set of financial results being reported.GDP - Annual 1-Q3)ENVIRONMENTEconomic updateSri Lanka’s economic performance will have a direct impact onAIA Sri Lanka’s business operations and financial performance.Economic growth will have an impact on sales, inflation will havea bearing on the costs of operations and capital investments, andinterest rate and equity market performance will have an influenceon investment income.Economic growthSri Lanka’s Gross Domestic Product (GDP) for 2017 is estimatedto be below projections made at the beginning of the year withgrowth expected to be lower than that recorded in 2016. This isreflected by the annual GDP growth presented in Figure 1. Theservice sector which is the largest component of Sri Lanka’seconomy reported higher growth, particularly in the financial andtransportation sectors. The industry sector showed modest growthstemming from activity in the construction sector. The agriculturesector continued to be affected by unfavourable weatherconditions which prevailed over the last two years.The demographic composition and low insurance penetrationprovides significant upside for Life insurance growth in Sri Lanka,with the right socio-economic conditions to support.14 AIA INSURANCE LANKA PLCFigure 1InflationInflation remained at single digit levels in 2017. However, generalprice levels increased in the latter half of the year due to supplyside shocks and increased prices of import commodities. Thedeceleration in private sector credit growth and broad moneygrowth (M2b), as reflected in Figures 2 to 4, indicate the possibleslowdown of inflationary pressure in forthcoming periods.A decrease in inflation to near or above double digits may lead toan increase in the individual’s disposable income and capacity tosave and may have a positive impact on sales and growth of theLife insurance industry.A decrease in inflation is also expected to lead to a reductionin interest rates over time which would result in savers andinvestors earning comparatively lower returns on their savings andinvestments.

MANAGEMENT DISCUSSION & ANALYSISa result of measures taken by the Central Bank to ease repaymentpressure in the latter half of the year, as well as a deceleration indemand for credit by the private sector amidst a policy rate hikein the first quarter of the year. Demand for domestic credit by thepublic sector reduced as a result of the issue of a USD 1.5 billionsovereign bond and receipt of USD 418.6 million being the thirdand fourth tranches of the Extended Fund Facility (EFF) from IMF.Inflation%8765432Interest Rate -364-day T-bill10Jan-14Jul-14Point to Point l Average10Figure 286M2b-growth4%Jan-13 Jan-13 Jan-14 Jul-14 Jan-15 Jul-15Jan-16 Jul-16 Jan-17 Jul-1725Figure ul-17A stable and sustainable low interest rate environment wouldencourage business investments and economic activity due to thelower cost of capital. However, this would provide lower returnsto investors in fixed income securities. The low interest rateenvironment would cause an increase in the market value of fixedincome investments that have already been made when interestrates were higher.Figure 3External reserves and exchange ratesSri Lanka’s gross official reserves are estimated to be USD 7.9billion in December 2017, mainly strengthened by the internationalsovereign bond issue and the three-year EFF from the IMF. Thepurpose of these were to enhance the external reserve positionof the country and to support the government’s broad economicreform agenda. The Central Bank continued to absorb foreignexchange from the domestic market to build non-borrowed reserves.Furthermore, the government received USD 292.1 million being thefirst tranche of the divestment proceeds of the Hambantota harbour.Net credit growth to the private ul-16Jan-17Jul-17Figure 4Interest ratesThe benchmark 364-day T-bill rate decreased notably to 8.90per cent by December 2017, a decrease of 127 bps during 2017,as shown in Figure 5. The five-year Treasury bond Interest ratedecreased by 225 bps over 2017. The decline in interest rates wasDuring the year, foreign investor interest in government securitiesimproved, and the government managed to secure USD 1.0 billionthrough syndicated loans and USD 1.1 billion from long-termloans. The foreign reserves were affected by lower growth intourism earnings and a notable decrease in worker remittancesdue to adverse economic and geopolitical conditions in theMiddle-Eastern region.The LKR depreciated 2.3 per cent during 2017 as depicted InFigure 6. The Central Bank’s efforts to float the exchange ratehelped ease pressure on the rupee. This together with an increasein foreign reserves helped to maintain a steady exchange rate.ANNUAL REPORT 2017 15

LIVE HEALTHIER, LONGER AND BETTER LIVES MANAGEMENT DISCUSSION & ANALYSISThe strengthening of external reserves and a steady exchange ratemay ease inflation due to the lower increase in prices of importeditems. Upward pressure on interest rates may remain in 2018 withhigher debt repayments expected in the second half of the year.USD Exchange Rate%2002017, market PE reduced to 10.6 times by December 2017 from12.4 times reported as at December 2016 as a result of growth incompany earnings.The equity market may continue to remain volatile over theforeseeable future given the domestic and internationalenvironmental conditions and their impact on investor activity onthe Colombo Stock Exchange.Any downturn in domestic equity markets may adversely affect theCompany’s equity investment portfolios maintained for the unitlinked business.175150CSE - ASPI125%100Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15 Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17Figure 6Fiscal out-turnIn 2017, Sri Lanka managed to achieve fiscal discipline to somedegree with an increase in tax revenue. During the first tenmonths, government revenue expanded by 10.4 per cent to LKR1,470.7 billion through an increase in tax revenue by 14.2 per centto LKR 1,370.3 billion. The increase in tax revenue helped to acertain degree to achieve the IMF target of tax to GDP ratio of 14.4per cent.8,0007,0006,0005,000Jan-13 Jan-13 Jan-14 Jul-14 Jan-15 Jul-15Jan-16 Jul-16 Jan-17 Jul-17Figure 7REGULATORY UPDATE REVIEWThe expenditure increased by 9.8 per cent to LKR 2,408.0 billiondue to increase in both recurrent expenditure (9.0 per centincrease) and capital and net lending expenditure (11.3 per centincrease).The overall fiscal deficit is estimated at 5.2 per cent of GDP andis forecast to decline further to 4.8 per cent in 2018, and in thiscontext revenue collection is a crucial focus for the State Treasury.Increased borrowing by the government to fund its obligationsmay lead to inflationary and interest rate pressure.Equity market performanceEquity market performance for the year 2017 improved aftertwo years of negative returns as the All Share Price Index (ASPI)closed the year with a gain of 2.3 per cent against the 9.7 per centdrop recorded in 2016. The ASPI grew by 141.00 index pointswhile blue-chip constituent S&P SL20 index increased by 175.28index points.Higher foreign investor activity and few strategic trades improvedmarket performance where average turnover increased to LKR927.0 million (LKR 747.7 million in 2016). During the year netforeign inflows topped LKR 18.0 billion.During 2017 the stock market witnessed four IPOs worth LKR3.3 billion and four debenture issues worth LKR 12.0 billion. In16 AIA INSURANCE LANKA PLCThe Company has fully implemented the Risk-Based Capital (RBC)Regime since 1 January 2016, in compliance with the applicableregulations. From December 2016, the Insurance RegulatoryCommission of Sri Lanka (IRCSL) required that the insurancecompanies maintain the one-off surplus arising from change inpolicy liability valuation within the Long Term insurance fund /insurance contract liabilities separately, in the name of “Surpluscreated due to change in valuation method from NPV to GPV”and not to transfer / distribute any part of the said surplus untilspecific instructions are issued by the IRCSL. The Companycomplied with the above ruling by taking steps not to distributebut to hold the one-off surplus created when migrating to the RBCregime within the long term insurance fund / insurance contractliabilities, separately in the name of “Surplus created due tochange in valuation method from NPV to GPV”.As per the Directives issued by the Securities and ExchangeCommission (SEC), the Listing Rules of the Colombo StockExchange applicable to the Company mandates (among otherthings) of a continuous listing requirement in relation to themaintenance of a minimum public float. Accordingly, it ismandatory that the Company being listed on the Main Board,maintained by 31 December 2016, a minimum public float of20 per cent of its total listed ordinary shares in the hands of astipulated number of mi

AIA INSURANCE TOPS MDRT IN SRI LANKA AND CROSSES THE 100 MEMBER MARK AIA Sri Lanka crossed 100 MDRT (Million Dollar Round Table) members for 2016, making it the first and only insurer in Sri Lanka to do so! AIA had the most number of MDRT members in Sri Lanka, with a total of 110 MDRT certificates awarded to AIA Wealth Planners and Bancassurance

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