about arabia · 2018-10-18 · annual report 2015 7 subsidiaries & affiliated ompaniesc arabia...

ANNUAL REPORt 2015

Table of conTenTs

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abouT aRabIa

branch officesarabia’s Vision, Mission & Goalssubsidiaries and affiliated companiesboard of DirectorsGeneral Management (Head office)life & non-life agencies

53consolIDaTeD fInancIal sTaTeMenT anD auDIToR’s RepoRT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .

I. execuTIVe suMMaRy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

II. aRabIa opeRaTIons oVeRVIew. . . . . . . . . . . . . . . . . .

1. Insurance operations1.1 non-life Global overview1.2 life Insurance operations

2. Investment operations2.1 Investment operations - General Departments2.2 Investment operations - life Department

3. financial Highlights3.1 non-life3.2 life

4. other Issues4.1 other operational Highlights

III. coRpoRaTe GoVeRnance, RIsK & capITal ManaGeMenT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1. corporate Governance2. Group Risk & capital Management

2.1 capital Management 2.2 Risk Management

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3839414145

RepoRT of THe boaRD of DIRecToRs on THe 71sT fInancIal yeaR of THe coMpany’s opeRaTIons

ANNUAL REPORt 2015

abouT aRabIa

ANNUAL REPORt 2015

ManamaKuwaitDoha

annual Report 2015Report of the Board of Directors and Statements of Accounts for the Financial year ending on 31/12/2015 submitted to the 71st Annual General Assembly of Shareholders.

Head office:Arabia House - Phoenicia street - Beirut - LebanonTel. 961 - 1 - 363610 /363611 & 961 - 3 - 314350 / 314351Telefax 961 - 1 - 365139 /363659

P.O.Box 11 - 2172 Beirut - LebanonE-mail [email protected] www.arabiainsurance.com

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branch officesCountry Branch Local Sponsor Management

United Arab Emirates

Sultanate of Oman

Bahrain

Lebanon

KuwaitQatar

ain el MreissehTripoliZalkasaidachtaura

Muscatsalalah

DubaiSharjahAbu DhabiAl-Ain

M/s. Moosa abdul Rahman Hassan & co.

Mr. Mohammad Jalal

ali bin ali establishmentMr. Mohammad abdul Rahman al bahar

Mr. Ismail Ibrahim abdallah Mohammad el Hamadisheikh Khaled al KassimiMr. ahmed bin GhanoumMr. saeed sultan salmeen bin Harmal al-Dhahiri

eli Daccache - country Manager

Tareq fakhouryJihad salamin

alain Georr

Ibrahim Kabbaranabil Kawar

fadi said chammas – country ManagerMaurice shaheenRaed Daghmash

Mohammad el Hassan - Regional Director - lebanonserge flouty - business DevelopmentToni choueiryIsmail el Rifielias sawaya

Roger Dawalibi

ANNUAL REPORt 2015VisionTo be the leading “customer centric” Arab Insurer.

MissionTo provide accessible, simple, effective, and client friendly products and services that respond to the evolving needs of our customers.

arabia’s vision, Mission & Goals

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Sustain a culture of leadership, trust, open communication, transparency, efficiency, effectiveness and innovation, thus adding further value to our stakeholders.

Develop, invest in, empower our human capital to take on the challenges of a fast changing and growing industry, capitalizing on teamwork spirit and a “customer centric” culture.

Enhance our corporate brand by using an advanced and holistic marketing approach.

Play a positive role in the countries of our operations through local CSR activities.

Use state of the art technology.

Goals

Enhance Shareholder value.

Emphasize excellence in our relations with our stakeholders, while exercising good corporate governance, enhancing our internal controls,simplifying processes, and upholding professional ethics, integrity and social responsibility.

Respond to our customers’ needs by offering them transparent quality products, good investment opportunities, outstanding personalized services, dedicated personnel, and an elaborate, easily accessible, distribution & claims’ handling networks.

Achieve a fair return on equity, benchmarked with local markets’ yields.

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subsidiaries & affiliated companies

ARABIA s.a.l. HOLDInG COmPAnyHead Office Arabia House Building, Phoenicia St.Tel. 961 - 1 - 363610/1 & 961 - 3 - 314350/1Fax 961 - 1 - 362975P.O.Box 11 - 2172 Beirut - LebanonE-mail [email protected]

ARABIA InTERnATIOnAL COmPAny B.S.C. ClosedHead Office Bahrain Tower - Al Khalifa AvenueTelefax 973 - 17 - 214110P.O.Box 11432 Diplomatic Area manama – Bahrain

ARABIA InSURAnCE BROKERS s.a.r.l.Head Office Arabia House Building - Phoenicia St.Tel. 961 - 1 - 363610/1Fax 961 - 1 - 363659 / 365139P.O.Box 11 - 2172 Beirut – Lebanon

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ARABIA InSURAnCE COOPERATIVE COmPAnyHead Office Bin Tami Center, King Abdel Aziz RoadTel. 966-11-2153360Fax 966-11-2153197P.O.Box 286555 - 11323 Riyadh - KSAEmail [email protected] www.aicc.com.sa

ARABIA InSURAnCE COmPAny - SyRIA S.A.Head Office Abu Remaneh, Al Sebki Park, Hugo Chavez StreetTel. 963 - 11 - 6627745Fax 963 - 11 - 6627750P.O.Box 34801 Damascus - SyriaEmail [email protected] www.arabiasyria.com

Branches in the Kingdom of Saudi Arabia:Riyadh - Head OfficeJeddah Branch 1Jeddah Branch 2mekkahTaefKhamis musheitDammamHoufouf

Branches in Syria:Damascus Head OfficeDamascus BranchAleppoHomsLattakiaTartousHamaSweida

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ARABIA InSURAnCE COmPAny - JORDAn LtdHead Office Arabia Insurance Building - Al Shmesani

Abed El Hameed Sharaf Street- Building 3Tel. 962 - 6 - 5630530Fax 962 - 6 - 5622303P.O.Box 20031 Amman (11118) JordanE-mail [email protected] www.aicj.jo

UPI (SERVICES) LImITEDHead Office 3, Chrysanthou - mylona StreetTelefax 5340734P.O.Box 6253 - 3305 Lemesos-Cyprus

AL mASHRIQ FInAnCIAL InVESTmEnT CO. s.a.l.Head Office Arabia House Building - 131 Phoenicia St.Tel. 961 - 1 - 363610/1Fax 961 - 1 - 362975P.O.Box 4069 Beirut – Lebanon

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Board of Directors

board of Directors Effective 27/5/2016

mr. Wahbe Abdallah Tamari (Chairman)mr. Hani Atallah Freij (Vice - Chairman)Arab Bank PLC (Represented by mr. Riyad Kamal)mr. nadim BaroodyDr. Karma Fahoum EI-Hassanmr. nadim Ghantousmr. maroun Kyrillos

board committees

Investment committeemr. Wahbe Tamari / Committee Chairpersonmr. Hani Freijmr. Riad Kamalmr. nadim Ghantous

shares Transfer committeemr. Wahbe Tamari / Committee Chairpersonmr. Hani Freijmr. nadim Baroody

nomination, Remuneration& strategic affairs committeemr. Wahbe Tamari / Committee Chairpersonmr. Hani Freijmr. nadim Baroody

audit & compliance committeemr. nadim Baroody / Committee ChairpersonDr. Karma Fahoum El-Hassanmr. maroun Kyrillos

Risk committeemr. maroun Kyrillos / Committee Chairpersonmr. nadim Ghantousmr. Tarek Al-Suleiman

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General Management (Head office)

General Managermr. Samer Abou Jaoude

Deputy General Managersmr. Hisham Barraj. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

mr. naji Fayad. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

assistant General Managersmr. marwan mokdad. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

mr. Wael El Bsat. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

mr. Bassam Semaan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

legal advisorms. Grace Doro

auditorsDeloitte & Touche

InsuranceFinance

Human ResourcesOperationsLife

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life & non-life agencies

life agenciesCedars Agency/ Verdun - Lebanon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Elite Agency/Ashrafieh - Lebanon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Unirisk Agency/Beirut - Lebanon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Interbrok Agency/Beirut-Lebanon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Dynamix Agency/Sharjah - UAE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Falcons Agency/Abu Dhabi, Al Ain & Dubai - UAE. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Pharaohs Agency/Sharjah - UAE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The A Team Agency/Dubai - UAE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

managed by mr. Riad Shoukairmanaged by mr. Antoine Zakhiamanaged by mr. Ghaleb Damajmanaged by mr. Elie Bekhazimanaged by mr. Ashraf Hamdymanaged by mr. Hassan Al Khatibmanaged by mr. mohamad nabil El Kassedmanaged by mr. Assaad Abou Seif

non-life agenciesAntelias Agency/Antelias-Lebanon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Ashrafieh Agency / Ashrafieh-Lebanon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Baalbeck Agency/ Baalbeck-Lebanon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Badaro Agency/Badaro-Lebanon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Hadath Agency/Hadath-Lebanon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Jdeideh Agency/Jdeideh-Lebanon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Jib Jennine Agency/Jib Jennine-Lebanon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Koura Agency/Koura-Lebanon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Rabieh Agency/Rabieh-Lebanon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Saida Agency/Saida -Lebanon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Verdun Agency/ Verdun-Lebanon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Zahle Agency/Zahle-Lebanon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chtaura Agency/Chtaura-Lebanon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Sin El Fil Agency/Sin El Fil-Lebanon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

managed by mrs. Vera Atallah Aramounimanaged by mr. Antoine Zakhiamanaged by mrs. Oumayma Haidar younessmanaged by mr. Samer Khalilmanaged by mr. matta Sakrmanaged by mr. Georges Saadmanaged by mr. Joseph Abi Faresmanaged by mr. nizam najjarmanaged by mrs. nivine Chediakmanaged by mr. Sami Awadmanaged by mr. Bassem Abou Dahermanaged by mrs. Lina Haroukmanaged by mr. Dani Georges Salibamanaged by mr. Ghassan Germanos

ANNUAL REPORt 2015non-life agencies

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Sohar Agency/Sohar-Sultanate of Oman. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Khabourah Agency/Sohar-Sultanate of Oman. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Suwaiq-Tharmad Agency/Sohar-Sultanate of Oman. . . . . . . . . . . . . . . . . . . . . . . . .

Al Buraimi Agency/Al Buraimi-Sultanate of Oman. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Ibri Agency/Al Buraimi-Sultanate of Oman. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

yanqel Agency/Al Buraimi-Sultanate of Oman. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Al khoud Agency/muscat-Sultanate of Oman. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Ghubra Agency/muscat-Sultanate of Oman. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Khuwair Agency/muscat-Sultanate of Oman. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Al Hail-Amani Al Faisal Agency/muscat-Sultanate of Oman. . . . . . . . . . . . . . .

Barka-Amani Al Faisal Agency/muscat-Sultanate of Oman. . . . . . . . . . . . . .

Al Qandeel - Darset Agency/muscat-Sultanate of Oman. . . . . . . . . . . . . . . . .

Al Qandeel - Al Seeb Agency/muscat-Sultanate of Oman. . . . . . . . . . . . . . . . .

Al Qandeel - Al Rustaq Agency/muscat-Sultanate of Oman. . . . . . . . . . . . . .

Al Tawfeeq Establishment/muscat-Sultanate of Oman. . . . . . . . . . . . . . . . . . . . .

Gateway International Assurance L.L.C/ Dubai-UAE. . . . . . . . . . . . . . . . . . . . . . . . .

managed by mr. Abdullah Al Farsimanaged by mr. Abdullah Al Farsimanaged by mr. Abdullah Al Farsimanaged by mr. Rasid Al Jabrimanaged by mr. Rasid Al Jabrimanaged by mr. Rasid Al Jabrimanaged by mr. Shahul Hamedmanaged by mr. Kalid Al Ismailimanaged by mr. nabih Ahmed Abu Drazmanaged by mr. Faisal Al Farsimanaged by mr. Faisal Al Farsimanaged by mr. Jacops Kuriakosemanaged by mr. Jacops Kuriakosemanaged by mr. Jacops Kuriakosemanaged by mr. Bilal Akbarmanaged by mr. Georges Ashkar

life & non-life agencies

ANNUAL REPORt 2015

RepoRT of THe boaRD of DIRecToRs on THe 71sT fInancIal yeaR of THe

coMpany’s opeRaTIons

ANNUAL REPORt 2015

I. execuTIVe suMMaRy

RepoRT of THe boaRD of DIRecToRs

ANNUAL REPORt 2015

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Dear Shareholders,

We are glad, on behalf of the Board of Directors of Arabia Insurance Group, to present to you the Annual Report and the consolidated financial statements for the year ending December 31st 2015, along with the necessary illustrations and explanatory analysis.

The year 2015 was a difficult year by all standards; economic, political and social. This has led to increased uncertainty and a further drop in economic activity, especially with the unprecedented drop in oil prices with its huge impact on government spending leading to budget cuts in almost all GCC countries. Insurance remained one of the most negatively affected sectors, where premium growth, if any, was low, and operating margins were very tight, if not negative. Despite all those unfavorable factors, the technical results of the General Insurance departments (net of allocated General & Administrative Expenses) amounted to LBP 2.4 B equivalent to USD 1.6 m in 2015. Total non-Life production increased from LBP 224 B equivalent to USD 149 m in 2014, to LBP 225 B equivalent to USD 150 m in 2015.

As we have mentioned during the past years, the two lines of medical and motor have been suffering from technical losses, and contributing negatively to the total underwriting results. However, our remedial measures on those lines, which began in 2014 and continued in 2015, started to bear fruits. The medical underwriting results (net of allocated General & Administrative Expenses) improved by 45% from a loss of LBP 4.4 B equivalent to USD 2.9 m in 2014, to a loss of LBP 2.4 B equivalent to USD 1.6 m in 2015. The motor underwriting results (net of allocated General & Administrative Expenses) recorded a slight loss of LBP 0.6 B equivalent to USD 0.4 m in 2015, after having recovered to a profit of LBP 2.1 B equivalent to USD 1.4 m in 2014. The root causes of this slight loss have been identified and tackled and the result is expected to turnaround soon. The remaining other lines (non-medical non-motor) posted total underwriting results (net of allocated General & Administrative Expenses) of LBP 5.9 B



ANNUAL REPORt 2015

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equivalent to USD 4 m from a total generated production of LBP 50 B equivalent to USD 33 m in 2015, against total profits of LBP 8.6 B equivalent to USD 5.7 m from a total generated production of LBP 52 B equivalent to USD 35 m in 2014.

On the Life side, profits increased significantly, from LBP 0.6 B equivalent to USD 0.4 m in 2014 to LBP 4.3 Bequivalent to USD 2.9 m in 2015, mainly due to the growth of 19% in life premiums from LBP 37 B equivalent to USD 24.5 m in 2014 to LBP 44 B equivalent to USD 29.1 m in 2015.

On the investments side, the company achieved in 2015 a non-life investment income of LBP 7.8 B equivalent to USD 5.2 m, while the non-life invested assets reached LBP 254 B equivalent to USD 169 m. The Life investment income remained stable at LBP 1.73 B equivalent to USD 1.15 m in 2015 (LBP 1.72 B or USD 1.14 m in 2014).The reinsurance treaty renewals were smooth this year, and enhanced the partnership relationship between Arabia and its reinsurers, which will support Arabia’s top line and bottom line aspirations for the years to come. We continued to subscribe to a Group treaty led by a first class European reinsurer, and covering our countries of operations including the 3 sister companies; AIC-Lebanon, AICJ (Jordan) and AICS (Syria).

In march 2016, A.m. Best has re-affirmed the financial strength rating of B++ (Good) for Arabia Insurance Company s.a.l. (AIC) (Lebanon), with a stable outlook. In its report, A.m. Best recognized the positive impact of the company’s remedial program adopted in 2015 to improve underwriting performance, which included non-renewal of loss-making contracts and the introduction of data-driven pricing tools.



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In brief, the results of our subsidiaries and their respective insurance markets situation are as follows:

- Arabia Insurance Company - Jordan (AICJ): Ongoing regional disruptions affected the Jordanian insurance industry and are expected to continue to have an impact over the coming few years. AICJ reported a net profit of JD 120 K equivalent to USD 169 K in 2015, down from JD 737 K equivalent to USD 1,039 K in 2014. AICJ premiums increased from JD 17 m equivalent to USD 24.1 m in 2014 to JD 18 m equivalent to USD 25.1 in 2015. In march 2016, A.m. Best has re-affirmed the financial strength rating of B+ (Good) for Arabia Insurance Company- Jordan (AICJ), with a stable outlook.

- Arabia Insurance Company - Syria (AICS) continued its operations despite the ongoing conflict in Syria, and the resultant deteriorating economic and political situation. Total premiums increased from SyP 606.2 m to SyP 658.1 m,but due to the deterioration of the Syrian Pound exchange rate, the premiums decreased in US Dollars terms from USD 3.4 m in 2014 to USD 3.1 m in 2015. Profitability increased from SyP 18 m equivalent to USD119 K in 2014 to SyP 70 m equivalent to USD 335 K in 2015.



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Future OutlookWe shall continue to channel our efforts in 2016 and beyond towards improving our market position and increasing our bottom-line by identifying and removing the threats to profitability in all lines of business. Despite all the challenging conditions, represented mainly in the difficult political and security situation in the region, paired with the decrease in oil prices, we have set for Arabia ambitious performance targets for 2016 and beyond and shall strive to overcome these obstacles, concentrate on developing our relations with our customers, brokers, and partners, and making it more efficient through our services. We are revamping our infrastructure and upgrading our organizational efficiency, in order to arrive at a leaner and more cost effective business model that would be geared into boosting our targeted growth and maximizing our profitability. We shall also focus on introducing new products that meet the needs of our customers, and work on developing the current products in all lines of business including both General Insurance and Life Insurance. In doing all this, we shall make sure to capitalize on our broad geographical spread, our diverse and varied services, in addition to our good and professional reputation. We will also continue developing our human resources at all levels, always stimulating the culture of “customer centricity” across Arabia.

We are grateful to our CUSTOmERS for their continued support and loyalty, to Arabia Shareholders for their trust in Arabia, and to the board of directors, management and employees for their dedication, hard work and loyalty. Together we shall build a better future for Arabia.yours sincerely,

Wahbe Abdallah TamariChairman of the Board of Directors



ANNUAL REPORt 2015


II. aRabIa opeRaTIons oVeRVIew

ANNUAL REPORt 2015

Consolidated Operations of Arabia Insurance Co. s.a.l, Arabia Insurance Co.-Syria and Arabia Insurance Co. – Jordan (hereinafter referred to as Arabia).

This year 2015, we are pleased to report that Arabia recorded an underwriting result in its non-life operations of LBP 2.4 billion (net of allocated General and Administrative Expenses).

This was achieved despite the negative economic, political and social atmosphere in Arabia’s areas of operations and entourage, which affected both the growth in premiums production and operating margins. All of the General lines reported positive technical results except medical and motor. However, as a result of our promised remedial measures on those latter 2 lines, the medical department’s underwriting loss decreased by 46% from a negative LBP 4.4 billion in 2014 to a negative LBP 2.4 billion in 2015. The motor department sustained a slight loss of LBP 0.6 billion in 2015, the causes of which have already been identified and tackled, and the situation is expected to improve by the end of the current year 2016.

As mentioned last year, we are relentlessly following a roadmap which aim is threefold: cleaning our portfolio from loss-producing risks, increasing our underwriting bottom-line, and raising our market share in insurance segments and markets where extra profitability is possible and achievable.

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1. Insurance operations

1.1 non-life Global overview



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We are revamping our operational infrastructure and upgrading our organizational efficiency, aiming attransforming our business model into a lighter and more cost effective platform that would be geared intoachieving a respectable return on equity, while serving our customer base in the most ideal and efficient manner.

The insurance operations of Arabia remain protected by Reinsurance treaties with preferential terms and underwriting capacities, supported by first class reinsurance securities.

The continuation of the extremely soft market conditions, whether in terms of cut-throat low premium rates, wide uncontrollable terms, or inflow of opportunistic capacity in the countries where Arabia operates, will remain an ever-growing challenge.

We are confident that we can overcome those challenges by capitalizing on our long history, distinguished resources and the will to succeed.


1.1 non-life Global overview



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Jordan (aIcJ)The Life Insurance Total Gross Premiums at AICJ reached JD 2,157,034 in 2015 versus JD 1,456,533 in 2014, scoring an increase of 48%.

The technical profits reached JD 226,444 in 2015, versus JD 67,913 in 2014, with an increase of 233%.

AICJ Life Operation will reinforce its distribution channels, which will positively affect its productivityand profitability.

lebanon & Gulf (aIc)The Life Insurance Total Gross Written Premiums at AIC (Lebanon & Gulf ) sustained its growth and reached LBP 39.32 billion (USD 26.08 million), with a growth rate of 15% over 2014 figures. Our consolidated profits (including Jordan) increased by 575%, i.e. from USD 0.42 million in 2014 to USD 2.86 million in 2015.

Enhanced the recruitment standards of new producers with increased focus on quality.

In 2015, the Total Group Life Gross Written Premiums reached LBP 5.45 billion (USD 3.62 million). Whereas, First year Written Premiums of Individual Term Insurance marked LBP 1.67 billion (USD 1.11 million)

Our Unit-Linked products – the “Arabia Lifestyle” range – which offer an optimum combination of Protection and Investment, scored the highest share in our production figure, reaching USD 7.79 million (First year Written Premiums), with an increase of 28% over last year figures.


1.2 life Insurance operations



ANNUAL REPORt 2015

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Unit-Linked Premiums in Millions of US$

$14.00

$12.00

$10.00

$8.00

$6.00

$4.00

$2.00

$0.00

$7.79

$12.52

$10.23

2015

First Year Unit-Linked Renewal Unit-Linked



$4.38

$6.10

$8.84

2011 2012 2013 2014

$4.44 $3.77

$8.66$9.33

ANNUAL REPORt 2015

24



Geographical Distribution of Life Written Premiums in 2015

20151st Year Premiums

2015Renewal Premiums

2015Total Premiums

2014Total Premiums

LBP’000 LBP’000 LBP’000 LBP’000% % % %lebanonuaeomanbahrainKuwaitotherTotal

1,320,22314,857,0091,386,011550,254186,458575,827

18,875,782

2,632,24014,513,889

201,526351,371485,964

1,612,27919,797,269

4,067,69229,751,2991,600,382914,453707,711

2,275,27439,316,811

4,455,68023,722,8932,675,428790,060700,008

1,873,13934,217,208

7%79%7%3%1%3%

100%

13%73%1%2%2%8%

100%

10%76%4%2%2%6%

100%

13%69%8%2%2%5%

100%

Geographical Distribution of Total Written Premiums in 2015

Oman

BahrainKuwaitOther

UAE76%

4%

Lebanon10%

2%2%6%



ANNUAL REPORt 2015

25



Life Production Historical Chart (Total Written Premiums)

TOTAL PRODUCTION IN LBP BILLION

2015

2013

2011

2009

2007

2005

2003

2001

0 5 10 15 20 25 30 35 40 45

39.32



3.86

4.19

5.09

6.16

7.92

9.59

12.06

17.39

18.06

23.68

26.07

26.74

27.94

33.59

ANNUAL REPORt 2015

26



Group & Open Policies

28%

Regular Premiums

69%

Additional Premiums

3%

First Year Written Premiums Distribution in 2015



ANNUAL REPORt 20152. Investment operations

2.1 Investment operations - General Departments

The value of ARABIA invested assets in general insurance departments (excluding Property & Equipment) decreased by LBP 10.9 billion (-4.3%), from LBP 255.5 billion in 2014 to LBP 244.6 billion in 2015. This decrease was due to the drop in market price of our participation in ARABIA Insurance Cooperative Company (yoy drop LBP 18.6 billion) and Saudi Enaya (yoy drop LBP 4.5 billion).

meanwhile, the net investment income of the general departments was at LBP 7.31 billion in 2015 versus LBP 7.74 billion in 2014; this decline was mainly due to the lower available invested assets.

27

2015all amounts in LBP’000 2014

cash and banksDue to banksfinancial assets at fair value through profit or lossfinancial assets at fair value through other comprehensive incomefinancial assets at amortized costTotal Invested AssetsInterests on bank deposits, netInterests and dividend income from investment securitiesnet gain on investment securities at fVTplnet foreign exchange lossesTotal Investment Income

160,061,067 (9,241,747)14,858,269 67,924,72811,007,800

244,610,117 3,836,957 2,745,306 1,223,509 (499,014)7,306,758

159,056,574 (4,813,848)16,001,389 74,464,206 10,797,293

255,505,614 3,964,152 2,717,887 1,730,163 (670,618)7,741,584



ANNUAL REPORt 20152. Investment operations

2.2 Investment operations - life Department

Arabia invested assets of the Life division (excluding unit linked investments, Property, & Equipment) increased by LBP 2.9 billion (+7.6%), from LBP 38.3 billion in 2014 to LBP 41.2 billion in 2015.

The net investment income of the Life division (excluding unit linked investments) was LBP 1.73 billion for 2015.

28

2015all amounts in LBP’000 2014

cash and banksDue to banksfinancial assets at fair value through other comprehensive incomefinancial assets at amortized costTotal Invested AssetsInterests on bank deposits, netInterests and dividend income from investment securitiesnet foreign exchange lossesTotal Investment Income

29,163,598 (1,708,514)2,357,633

11,391,917 41,204,634

535,928 1,353,129 (158,931)1,730,126

26,991,323 (1,507,500)2,361,224

10,433,905 38,278,952

464,242 1,361,930 (106,047)1,720,125



ANNUAL REPORt 2015

29

3. financial Highlights

Total Assets

Total Equity

Net Profit

(usD Thousand)

(usD Thousand)

(usD Thousand)

20152014

370,059355,076

Percentage 4% ↑

2014 106,7242015 89,950

Percentage -16% ↓

48820142015 697

Percentage 43% ↑

Gross Written Premiums

2014 178,7782015 183,739

Percentage 3% ↑



- Life cash & investments and the intercompany current account with general insurance departments increased by around USD 3.5 million each.

- Reinsurance assets increased by around USD 22 million, mainly resulting from general accidents reinsurance share of outstanding claims. On the other hand, outward current account dropped by around USD 11 million.

- net change in fair value of investments decreased by around USD 15 million, mainly resulting from the Group’s investment in AICC and Enaya.

- 2015 profits from general insurance departments went down by around USD 2.2 million compared to 2014, mainly due to drop in motor & general accidents profits. On the other hand, life profits jumped by around USD 2.4 million following the 19% growth in premiums.

- Life production went up by 19% from 2014 to 2015, mainly due to a noticeable growth in UAE individual premiums.

(usD Thousand)

ANNUAL REPORt 2015

30


Net Written Premiums

2014 132,3182015 131,113

Percentage -1% ↓

- Solvency ratio decreased from 81% in 2014 to 69% in 2015, as a result of drop in total equity.

- Retention ratio decreased from 74% in 2014 to 71% in 2015, mainly as a result of increase in extended warranty premiums, and lower retention rates in marine, property & general accidents lines.

Underwriting Exposure

81%

74%

2014 2015

69% 71%

Solv

ency

Solv

ency

Rete

ntio

n

Rete

ntio

n

- Earnings per share (EPS) went up from USD 0.03 in 2014 to USD 0.04 in 2015.

- Return on average equity (ROE) went up from 0.4% in 2014 to 0.7% in 2015.

Profitability Metrics

20142015

EPS

$0.03$0.04

ROE

0.4%0.7%



- 2015 net written premiums slightly decreased compared to 2014, mainly due to lower retention in non-life lines of business.

(usD Thousand)

ANNUAL REPORt 2015

31


3.1 non-life

Net Loss ratioGross Loss ratio

Loss Ratio - Non-Life

80.0%

70.0%

60.0%

50.0%

40.0%

30.0%

20.0%

10.0%

0.0%

68.9%

54.5%

69.4%71.1%

2014 2015



Gross Loss Ratio = Change in Outstanding Claims (gross of reinsurance) + Paid Claims (gross of reinsurance) – Recoveries (gross of reinsurance) / Gross Earned Premiums (gross of reinsurance)

Net Loss Ratio = Change in Outstanding Claims (net of reinsurance) + Paid Claims (net of reinsurance) – Recoveries (net of reinsurance) / net Earned Premiums (net of reinsurance)

ANNUAL REPORt 2015

32

40.0%

35.0%

30.0%

25.0%

20.0%

15.0%

10.0%

5.0%

0.0%

12.8% 11.2%

23.4%24.4%

36.2% 35.7%

20152014

Acquisition ratio G&A ratio

Expense Ratio - Non-Life




3.1 non-life

Acquisition Ratio = Incurred Commission Expense – Earned Reinsurance Commissions + Other Expenses – Other Income / net Earned Premiums (net of reinsurance)

G&A Ratio = General & Administrative Expenses / net Written Premiums (net of reinsurance)

Expense Ratio = Acquisition Ratio + G&A Ratio

ANNUAL REPORt 2015

33

Combined Ratio - Non-Life

2015

120.0%

100.0%

80.0%

60.0%

40.0%

20.0%

0.0%

105.1%

35.7%

69.4%

105.1%

Net Loss ratio Expense ratio

2014

36.2%

68.9%




3.1 non-life

Combined Ratio = net Loss Ratio + Expense Ratio

ANNUAL REPORt 2015

34

Performance KPI’s - Non-Life120.0%

100.0%

80.0%

60.0%

40.0%

20.0%

0.0%

68.9%

105.1%100.4%

36.2%

69.4%

105.1%100.2%

35.7%

Expense ratio Combined ratio Operating ratioNet Loss ratio

2014 2015




3.1 non-life

Operating Ratio = Combined Ratio – (Investment Income / net Written Premiums)

ANNUAL REPORt 2015

35


3.2 life

Acquisition Ratio = Commission Expense – Reinsurance Commissions / net Written PremiumsG&A Ratio = General & Administrative Expenses / net Written PremiumsExpense Ratio = Acquisition Ratio + G&A Ratio

20152014

70.0%

60.0%

50.0%

40.0%

30.0%

20.0%

10.0%

0.0%

55.3% 52.5%

40.3%35.2%

15.0% 17.3%

Acquisition ratio G&A ratio

Expense Ratio - Life



ANNUAL REPORt 2015

36


Benefits Paid & Return on Premiums - Life

60.0%

50.0%

40.0%

30.0%

20.0%

10.0%

0.0%

30.5%

3.0%

9.5%

17.0%

Benefits paid to net insurance premiums

Return on net insurance premiums

Benefits Paid to Net Insurance Premiums Ratio = Claims Paid (net of reinsurance) + Change in Insurance Contract Liabilities (net of reinsurance) + Distribution of Profits to Policyholders / net Written Premiums – Premiums Allocated to Insurance Contract Liabilities

Return on net insurance premiums Ratio = net Income / net Written Premiums – Premiums Allocated to Insurance Contract Liabilities

2014 2015



ANNUAL REPORt 2015

37

In year 2015, Arabia continued implementing its strategy which focuses on customer centricity and promoting a company-wide sales driven culture. In line with Arabia’s customer centric strategy, and in order to retain and better serve existing clients, the concept of accounts executives was revisited to include a wider scope, covering in addition to brokers, corporate and individual clients.

On another note, and from its role in overseeing the functions of the branches, the Operations Division further enhanced its follow-up on accounts receivable. In this respect, a newly recruited credit control supervisor was appointed at Ain mreisseh branch, who is responsible for all Lebanon branches, to follow-up and monitor the company’s dues, thus ensuring the implementation of Arabia’s credit policy.

In an attempt to better monitor and provide a more transparent evaluation of the performance of producers, the Operations Division developed a quarterly assessment report which analyzes the performance of all producers (Brokers – Agencies – Sales Reps.) in areas of production, loss experience and payment habits. Apart from this, The Division continued its monthly follow up on the branches’ production versus budget, to constantly monitor the achievement of the company’s annual budget in terms of premium growth.

4. other Issues

4.1 other operational Highlights



ANNUAL REPORt 2015


III. coRpoRaTe GoVeRnance, RIsK & capITal ManaGeMenT

ANNUAL REPORt 2015

39

Through its well established and advanced corporate governance structure and effective role of its governing committees and entities, Arabia is committed to keep protecting and increasing the value of the shareholders’ investments, and consolidating its reputation as an insurance company that can be always trusted by clients, employees, governments and other stakeholders.

board of Directors

The composition, elections, meetings, duties and responsibilities of the Board of Directors are described in the Company’s Corporate Governance Charter and in accordance with the Lebanese law.

The Board of Directors delegated part of its duties to specialized committees. These committees are conducting these duties based on authorities and specific responsibilities defined in each related charter.

The main functions of these specialized committees are:

shares Transfer committeeConsiders and approves the shares transfers, and/or the subscription of the company’s shares.

Investment committeeSets the Company’s investment guidelines, approves the investment policy and supervises its investment in accordance with its risk tolerance and against agreed benchmarks.

audit & compliance committeeEncourages and safeguards the highest standards of professional integrity, financial reporting, corporate governance, compliance to all applicable laws/regulations, conformity to business ethics, and internal control.

1. corporate Governance



ANNUAL REPORt 2015

40

Risk committeeAssists the Board in fulfilling its oversight responsibilities of the Enterprise Risk management activities. Assesses the adequacy of the management of key internal and external risks, and monitors the Company’s risk profile.

Management committeeRuns and monitors the whole operations of the Company and ensures internal controls are in place.

asset-liability committeeSets the Company’s asset-liability management policy and supervises the resulting activity involving liquidity management, cash budget and forecasting.

IT steering committeemonitors and reviews IT projects, as well as provides oversight of the deliverable rollout.

business continuity Management committeeReviews the existing BCP and recommends improvements to address elements of continuity planning and restoration of the Company’s essential functions.

anti-fraud committeeAssists the Executive management in continuously developing and monitoring the Company’s Anti-Fraud Program across all functions.



1. corporate Governance

ANNUAL REPORt 2015

41

The ratings reflect the sound risk-adjusted capitalization and well-diversified business profile”. (Excerpt from AM Best Report-March 2016).

2.1 capital Management

The Group continues to manage its capital on a consolidated basis. Each company within the group has its own rating and capital requirements.

The overall strategy is to meet these requirements and ensure the Group’s ability to continue as a going concern, while maximizing the return through the optimal use of our capital.

processes for Managing capital

The Group’s capital monitoring activity is driven by the strategic objectives and the Board risk appetite statements. Revisions are made in light of changes in the economic and market conditions, and the risk characteristics of operations and underlying assets. The Group’s overall strategy remains unchanged from prior year.

The Group’s capital position to certain risks is being regularly monitored through ALm, stress testing and actuarial assessments. In addition, financial risks are being overseen by the Investment Committee and mitigated by abiding to risk limits defined and stated in the Group Investment policy.



2. Group Risk & capital Management

ANNUAL REPORt 2015

42

capital adequacy assessment

The Group keeps improving the existing risk models, preparing for the upcoming solvency II capital adequacy and economic capital requirements.

At present, the Group assesses its capital position using a newly developed risk-based capital model. The assessment is made at both the group/entity level, as well as by line of business and by geographical location.





20142015 2013 2012

Gearing RatioSolvency RatioCapital Adequacy Ratio

1.5981%

192%

2.3269%na

1.4592%

170%

1.15115%174%

net Liabilities / Total Equity Total Equity / net Written Premiums*net Required Capital / Total Adjusted Equity**

*net Written Premiums = Technical Premiums + Other Technical Income - Reinsurance share of Technical Premiums + fees.

** net Required Capital (nRC) is computed to support the Group risks associated with the exposure of assets, business, and underwriting to adverse economic and market conditions.

The Group monitors its capital risk position based on widely-used capital ratios:

ANNUAL REPORt 2015

43

aM best Rating

Rating Results

In march 2016, Am. Best Europe published the rating results of Arabia (AIC) and affirmed the financial strength rating of B++ (Good) and the issuer credit rating of bbb+ (Secure).

20142015 2013 2012

Financial StrengthCredit RatingOutlook for FSR RatingOutlook for ICR Rating

b++ (Good)bbb+ (secure)

stablestable


stablenegative


stablestable


stablestable





aM best opinion (Excerpts from AM. Best Report - March 2016)

Rating Rationale

“The ratings reflect the adequate risk-adjusted capitalisation and well-diversified business profile of Arabia Insurance Company”.

“Although AIC’s location exposes it to significant economic, financial system and political risk, country risk factors are partially mitigated by the company’s level of diversification and business continuity plans”.

ANNUAL REPORt 2015

44

business profile

“AIC’s good level of geographical diversification offset the risk of business interruption caused by prevailing political unrest in the region. Along with the diversification of revenue, the company’s numerous branches and subsidiaries together with robust contingency plans will help the company to function in spite of adversity”.

Risk Management

“AIC has been developing its risk management framework over recent years, in line with international best practices. A corporate governance framework is well established and is relatively well advanced when compared to many of the company’s regional peers”.

“At present AIC assesses its capital position using a risk-based capital model. The assessment is made at both the group level, as well as by business line division and geographic location”.

capitalization

“AIC is expected to maintain a good level of risk-adjusted capitalisation in 2015. The company’s capital requirements are divided equally between underwriting risks and investment risks”.





ANNUAL REPORt 2015

45

liquidity

“AIC’s overall liquidity is adequate, given the significant holdings of cash and deposits. The company’s current liquidity ratio (total investments/[total liabilities - capital and surplus]) is expected to remain within the range of 85% and 90% over the coming two years”.

2.2 Risk Management

Risk Management strategy

The Group recognizes and understands that risk is inherent in seeking business opportunities, in developing and implementing new and original business strategies, and in dealing with local and global enterprises and communities.

While pursuing growth and achieving stakeholder’s needs and expectations, the Group is exposed to a variety of risks including credit, market, liquidity, underwriting, operational, compliance and other risks that require maintaining appropriate risk and control structure and ongoing oversight.

Through a robust enterprise risk management framework and effective Risk Committee role, these risks areidentified, assessed, and managed in accordance with the risk appetite of the Group. Our Risk Strategy is embedded in our risk appetite framework defined and approved by the Board of Directors. Risk limits are being closely monitored by the Risk management Department and overseen by the Risk Committee and General manager.





ANNUAL REPORt 2015

46

Risk Management Responsibilities

The Board of Directors, as a governing body, oversees the activities of the Group and sets the tone and culture towards effective enterprise risk management.

The Risk Committee (RC), appointed by the Board of Directors, assists in fulfilling the Board’s risk oversight responsibilities and advises the Board on matters related to risk governance, risk policies and risk appetite setting.

The RC monitors the risk profile of the Group as well as oversees the structure and operation of the risk management and control systems.

It also ensures proper adherence to the company’s risk management policies, approves risk limits and assesses the adequacy of internal controls designed to respond and mitigate the risks to an acceptable level.

The management Committee, headed by the General manager (Gm), is responsible for implementing sound and transparent risk management activities throughout the Group. The management Committee maintains a risk culture where people are accountable by effectively managing risk, sponsors the ERm framework and provides necessary commitment and support to the Risk management Department.

The management Committee also ensures that the business owners implement risk management policies in the areas for which they operate.




2.2 Risk Management

ANNUAL REPORt 2015

47



The Risk management Department integrates the corporate risk culture, as well as promotes the risk and internal control awareness among all entities and functions within the Group. It maintains and updates the ERm framework, develops risk methodologies as well as advises the Risk Committee on the risk tolerance and risk profile.

Through the application of the Group ERm Framework and Risk metrices, the Risk management Department identifies, measures and reports all types of risks within the Group. The Risk Committee is continuously informed on material risks along with assessment of internal controls and risk management action plans.


2.2 Risk Management

ANNUAL REPORt 2015

48



UNDERWRITING RISK

non-life / non-Medical Medical

premium Risk

Reserve Risk

catastrophic Risk

life

OPERATIONAL RISK

people Risk business process Risk

Information Technology Risk

IT system failures Risk

IT system Data security breaches

external events

natural Disaster

Man-Made Disaster

STRATEGIC RISK

business Risk

Governance Risk

Reputational Risk

external environmental Risk

economic Risk

societal Risk

Geopolitical Risk

FINANCIAL RISK

credit Risk

counterparty Default Risk

concentration Risk

Market Risk

equity Risk

Interest Rate Risk

spread Risk

others

asset-liability Management Risk

liquidity Risk

Insolvency Risk

COMPLIANCE RISK

legal Risk

Insurance laws & Regulations

Risk categories

The Group categorizes its risks to distinguish between the different types of risk exposures. The main five risk categories and related sub-categories are:


2.2 Risk Management

ANNUAL REPORt 2015

49

Mitigation of Key Risks

underwriting Risk

The underwriting strategy attempts to ensure that the underwritten risks are well diversified in terms of type and amount of risk, industry and geography.

The Group mitigates this risk through underwriting guidelines and authority limits for issuing insurance contracts, as well as through diversification across lines of business and proper reinsurance arrangements.

Pricing benchmarks and formulas by line of business/type/category are set in the respective underwriting manuals, to serve as a guideline for risk commensurate premium quoting. A software is used to continuously revise and enhance the pricing strategy.

claims settlement Risk

Clear documented claims settlement guidelines and limits by class of business are communicated to the claims functions.

Periodical reviews are carried out by the Head Office to ensure proper adherence to these guidelines and adequate internal control system.




2.2 Risk Management

ANNUAL REPORt 2015

50

Reserving Risk

The reserves are calculated based on substantiated assumptions, methods and assessments. Periodical reviews by internal and external parties are being made to ensure that the reported reserves are reasonable and sufficient.

Reinsurance credit Risk

The Group minimizes its financial exposure arising from large claims by entering into reinsurance agreements that are suitable and adequate for the corresponding business. Reinsurance placements are done with international reinsurers and in alignment with the risk appetite of the Board.

concentration Risk

This is the risk that the total coverage sum insured is aggregated at the level of a single policy, contract, or client and a large loss would be generated in the case that this single contract is hit by a covered event. The Group mitigates this risk and protects its equity through the transfer of catastrophe risks and proper reinsurance arrangements.




2.2 Risk Management

ANNUAL REPORt 2015

51

collection credit Risk

The financial loss that the Group could incur as a result of a change in the financial position of a counterparty is being managed through the Group’s credit policy and monitored through periodical analytical reports that highlight any breaches for the credit limits specified in the policy.

Market Risk

The Group closely monitors external market and regulatory developments through the supervision of the Board Investment Committee and Asset-Liability Committee.

The Board Investment Committee sets the guidelines and supervises the investment activities in accordance with the risk tolerance and limits described in the investment policy. The Committee receives periodically risk analysis reports (VaR simulation and risk scoring) and performance updates from our Treasury & Investment Department and seeks to reduce market risks by ensuring a high level of diversification both in its investment portfolio and direct investments.

The Asset-Liability Committee monitors the funding and cash budget and manages the liquidity risk in accordance with the Board risk appetite.




2.2 Risk Management

ANNUAL REPORt 2015

52

operational Risk

business continuity Risk

The Group enhanced its understanding of natural hazards, man-made hazards, political risk exposures and other emergency events (system breakdown) that could severely affect the continuity of the operations if they occur.

Through the proper implementation of Arabia’s Business Continuity Plan, and the effective role of the BCm Committee, the Group is ensuring that the business in the countries of operations can continue in the event of any unexpected incident.




2.2 Risk Management

ANNUAL REPORt 2015

consolIDaTeD fInancIal sTaTeMenT anD auDIToR’s RepoRT

ARABIA INSURANCE COMPANY S.A.L.

CONSOLIDATED FINANCIAL STATEMENTS

AND INDEPENDENT AUDITOR'S REPORT

YEAR ENDED DECEMBER 31, 2015


CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT


TABLE OF CONTENTS

Page

Independent Auditor's Report 1-2

Consolidated Financial Statements:

Consolidated Statement of Financial Position 3-4

Consolidated Statement of Profit or Loss 5

Consolidated Statement of Profit or Loss and Other Comprehensive Income 6

Consolidated Statement of Changes in Equity 7

Consolidated Statement of Cash Flows 8

Life Division, Consolidated Statement of Assets and Liabilities -- Appendix I 9

Life Division, Consolidated Statement of Profit or Loss and Other

Comprehensive Income -- Appendix II 10

Life Division, Consolidated Statement of Cash Flows -- Appendix III 11

Notes to the Consolidated Financial Statements 12-79

3


CONSOLIDATED STATEMENT OF FINANCIAL POSITION

FOR THE GENERAL INSURANCE DEPARTMENTS

December 31,

ASSETS Notes 2015 2014

LBP’000 LBP’000

Cash and banks 5 160,061,067 159,056,574

Investment securities at fair value through profit

or loss (FVTPL) 6 14,858,269 16,001,389

Insurance receivables, net 7 63,570,215 57,116,711

Due from reinsurers 8 7,621,670 24,168,170

Due from related company 25 840,546 448,900

Investment securities at fair value through

other comprehensive income (FVTOCI) 9 67,924,728 74,464,206

Investment securities at amortized cost 10 11,007,800 10,797,293

Reinsurance assets 21 80,260,282 47,045,462

Deferred acquisition costs 11 11,658,260 13,016,522

Deferred tax assets 19 940,141 925,102

Other assets 12 3,061,550 4,534,690

Property and equipment 13 15,261,774 20,118,727

Intangible assets 14 578,457 761,293

Investment properties 15 6,421,817 5,098,759

Total Assets 444,066,576 433,553,798

Assets of the Life Division – Appendix I 111,021,186 99,060,396

Combined Assets of General Insurance

Departments and Life Division 555,087,762 532,614,194

THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THE CONSOLIDATED

FINANCIAL STATEMENTS

4


CONSOLIDATED STATEMENT OF FINANCIAL POSITION


(Continued)

December 31,

LIABILITIES Notes 2015 2014

LBP’000 LBP’000

Due to banks 17 9,241,747 4,813,848

Insurance payables 18 24,423,703 26,313,563

Payables to insurance and reinsurance companies 12,786,105 13,621,431

Income tax payable 19 1,802,713 2,276,034

Due to life division 16 15,152,393 9,907,237

Accrued expenses and other liabilities 20 8,842,129 8,631,175

Insurance contract liabilities 21 247,288,917 214,534,416

Deferred commission income from reinsurers 2,941,070 2,636,576

Deferred tax liability 19 1,621,261 1,641,821

Provision for employees' end-of-service indemnity 23 6,291,240 6,035,110

Provision for contingencies 24 2,968,992 2,968,992

Total liabilities 333,360,270 293,380,203

EQUITY

Share capital 26 51,000,000 51,000,000

Treasury shares 26 ( 4,453,752) ( 6,381,646)

Legal reserve 27 23,905,628 23,884,634

General reserve 19,613,572 19,613,572

Asset revaluation reserve 28 6,887,300 6,887,300

Other restricted reserve 39 3,482,140 3,482,140

Foreign currency translation reserve ( 17,105,935) ( 14,810,173)

Cumulative change in fair value of investment securities at FVTOCI 29 ( 6,330,413) 16,051,720

Retained earnings 18,783,744 22,841,745

Equity attributable to owners of the parent company 95,782,284 122,569,292

Non-controlling interests 31 14,924,022 17,604,303

Total equity 110,706,306 140,173,595

Total Liabilities and Equity 444,066,576 433,553,798

Liabilities of the Life Division – Appendix I 86,802,110 79,148,661

Net Assets of the Life Division – Appendix I 24,219,076 19,911,735

Total Liabilities and Net Assets of the Life Division – Appendix I 111,021,186 99,060,396

Combined Liabilities and Equity of General Insurance

Departments and Life Division 555,087,762 532,614,194

THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THE CONSOLIDATED

FINANCIAL STATEMENTS

5


CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE

GENERAL INSURANCE DEPARTMENTS

Year Ended

December 31,

Notes 2015 2014

LBP’000 LBP’000

Net income/(loss) of General Insurance Departments:

Marine 2,272,828 3,100,002

Motor ( 628,506) 2,070,457

Property 2,273,981 2,567,172

General accidents 1,737,218 3,367,572

Workmen's compensation ( 390,344) ( 421,138)

Medical ( 2,385,519) ( 4,437,263)

Reinsurance inwards ( 477,623) ( 51,294)

Net income of general insurance departments

(net of allocated general and administrative expenses) 32 2,402,035 6,195,508

Provision for credit losses, net 7,8 ( 966,806) ( 621,409)

Net income of insurance departments (after provision for credit

losses and allocated general and administrative expenses) 1,435,229 5,574,099

Income/(loss) from Investments:

Interest on bank deposits 5 3,836,957 3,964,152

Interest expense on bank borrowings and overdrafts ( 116,265) ( 91,578)

Interest and dividend income from investment securities at FVTOCI 1,703,640 1,471,466

Interest from investment securities at amortized cost 662,789 781,527

Interest and dividend income from investment securities at FVTPL 378,877 464,894

Realized gain on sale of investment securities at FVTPL 1,952,326 1,335,030

Net change in fair value of investment securities at FVTPL 6 ( 1,217,902) 87,898

Net gain from derecognition of investment securities at amortized cost 489,085 307,235

Net foreign exchange losses ( 499,014) ( 670,618)

Depreciation of investment properties 15 ( 113,285) ( 94,594)

Net loss from building ( 51,392) ( 39,528)

Other income 748,565 311,198

Net income from investments 7,774,381 7,827,082

Total income from general insurance departments and investments 9,209,610 13,401,181

General and administrative expenses unallocated

to General Insurance Departments 33 ( 11,026,418) ( 10,799,380)

(Loss)/profit before tax ( 1,816,808) 2,601,801

Income tax expense ( 1,448,741) ( 2,509,276)

(Loss)/profit for the year ( 3,265,549) 92,525

Attributable to:

Owners of the Parent Company ( 3,504,237) ( 744,976)

Non-controlling interests 31 238,688 837,501

( 3,265,549) 92,525

THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL

STATEMENTS

6


CONSOLIDATED STATEMENT OF PROFIT OR LOSS

AND OTHER COMPREHENSIVE INCOME


Year Ended

December 31,

2015 2014

LBP’000 LBP’000


Other comprehensive loss (“OCI”):

Items that will not be reclassified subsequently to profit or loss:

Net change in fair value of investment securities at

FVTOCI - Note 29 ( 22,431,105) ( 20,640,299)

Items that may be reclassified subsequently to profit or loss:

Exchange difference arising from translating foreign subsidiaries ( 4,585,260) ( 2,871,410)

Total other comprehensive loss for the year ( 27,016,365) ( 23,511,709)

Total comprehensive loss for the year ( 30,281,914) ( 23,419,184)

Attributable to:

Owners of the Parent Company ( 28,182,132) ( 22,782,542)

Non-controlling interests ( 2,099,782) ( 636,642)

( 30,281,914) ( 23,419,184)


STATEMENTS

7


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY


Foreign Cumulative Equity

Asset Other Currency Change in Attributable to

Share Treasury Legal General Revaluation Restricted Translation Fair Value of Retained Owners of the Non-controlling Total

Capital Shares Reserve Reserve Reserve Reserve Reserve Investments Earnings Parent Company Interests Equity

LBP’000 LBP’000 LBP’000 LBP’000 LBP’000 LBP’000 LBP’000 LBP’000 LBP’000 LBP’000 LBP’000 LBP’000

Balance at January 1, 2014 51,000,000 ( 6,240,559) 23,619,265 19,613,572 6,887,300 - ( 13,372,659) 36,913,960 27,287,355 145,708,234 18,571,016 164,279,250

Total comprehensive income for the year - - - - - - ( 1,437,514) ( 20,600,052) ( 744,976) ( 22,782,542) ( 636,642) ( 23,419,184)

Gain on sale of investment securities at FVTOCI - - - - - - - - 116,565 116,565 328 116,893

Reclassification to retained earnings upon disposal of

investment securities at FVTOCI - - - - - - - ( 262,188) 262,188 - - -

Dividends paid to non-controlling interests - - - - - - - - - - ( 330,399) ( 330,399)

Board of Directors’ and committees’ remunerations – Note 30 - - - - - - - - ( 332,143) ( 332,143) - ( 332,143)

Net purchase of treasury shares - Note 26 - ( 141,087) - - - - - - - ( 141,087) - ( 141,087)

Transfer to legal and other restricted reserves - - 265,369 - - 3,482,140 - - ( 3,747,509) - - -

Other adjustments - - - - - - - - 265 265 - 265

Balance at December 31, 2014 51,000,000 ( 6,381,646) 23,884,634 19,613,572 6,887,300 3,482,140 ( 14,810,173) 16,051,720 22,841,745 122,569,292 17,604,303 140,173,595

Total comprehensive income for the year - - - - - - ( 2,295,762) ( 22,382,133) ( 3,504,237) ( 28,182,132) ( 2,099,782) ( 30,281,914)

Dividends paid to non-controlling interests - - - - - - - - - - ( 578,199) ( 578,199)

Board of Directors’ and committees’ remunerations – Notes 26 & 30 - 536,857 - - - - - - ( 536,857) - - -

Net sale of treasury shares - Note 26 - 1,391,037 - - - - - - 3,184 1,394,221 ( 2,300) 1,391,921

Transfer to legal reserve - - 20,994 - - - - - ( 20,994) - - -

Other adjustments - - - - - - - - 903 903 - 903

Balance at December 31, 2015 51,000,000 ( 4,453,752) 23,905,628 19,613,572 6,887,300 3,482,140 ( 17,105,935) ( 6,330,413) 18,783,744 95,782,284 14,924,022 110,706,306

THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS

8


CONSOLIDATED STATEMENT OF CASH FLOWS


Year Ended December 31,

Notes 2015 2014

LBP’000 LBP’000

Cash Flows from operating activities:


Adjustments for:

Interest income on bank deposits and investment securities ( 4,499,746) ( 4,745,679)

Interest expense on bank borrowings and overdrafts 116,265 91,578

Income tax expense 1,448,741 2,509,276

Net change in deferred tax balances ( 35,599) 280,746

Depreciation of property and equipment 13 1,070,540 1,119,649

Amortization of intangible assets 14 233,842 230,021

Depreciation of investment properties 15 113,285 94,594

Provision for employees' end-of-service indemnity 23 1,026,391 766,523

Provision for credit losses 7&8 966,806 621,409

Net change in foreign currency translation reserve ( 869,792) ( 921,950)

Net change in fair value of investment securities at FVTPL 6 1,217,902 ( 87,898)

Net change in fair value of derivative liabilities 20 ( 19,614) 293,155

Net change in deferred acquisition costs 11 1,358,262 2,225,659

Net change in reinsurance assets 21 ( 33,214,820) 15,907,595

Change in deferred commission income from reinsurers 304,494 54,456

Net change in insurance contract liabilities 21 32,754,501 ( 20,976,943)

( 1,294,091) ( 2,445,284)

(Increase)/decrease in insurance receivables ( 7,420,310) 12,866,953

Decrease in due from reinsurers 16,546,500 2,011,956

Decrease/(increase) in other assets 1,473,140 ( 1,001,369)

Decrease in insurance payables ( 1,889,860) ( 2,375,086)

(Decrease)/increase in payables to insurance and reinsurance companies ( 835,326) 1,945,583

Increase/(decrease) in accrued expenses and other liabilities 210,954 ( 1,606,487)

Settlement of provision for contingencies 24 - ( 852,732)

Settlement of provision for employees’ end-of-service indemnity 23 ( 770,261) ( 551,718)

Income tax paid ( 1,922,062) ( 3,090,428)

Net cash generated by operating activities 4,098,684 4,901,388

Cash flows from investing activities:

Interest received from bank deposits and investment securities 4,329,471 4,926,756

Interest paid on bank borrowings and overdrafts ( 116,265) ( 91,578)

(Increase)/decrease in investment securities 38 ( 16,851,457) 4,200,010

Decrease/(increase) in bank term deposits 5 5,390,516 ( 19,571,644)

Net increase in property and equipment 13,38 ( 667,489) ( 513,889)

Net increase in intangible assets 14 ( 57,884) ( 235,170)

(Increase)/decrease in investment properties 15 ( 797) 10,493

Net cash used in investing activities ( 7,973,905) ( 11,275,022)

Cash flows from financing activities:

Increase in due to banks 4,427,899 263,812

Net change in balance with the life division 5,245,156 193,082

Decrease in due to related company ( 391,646) -

Net sale/(purchase) of treasury shares 1,391,921 ( 141,087)

Other changes to retained earnings 903 265

Dividends paid to non-controlling interests ( 578,199) ( 330,399)

Settlement of board of directors' and committees' remunerations - ( 332,143)

Net cash generated by/(used in) financing activities 10,096,034 ( 346,470)

Net increase/(decrease) in cash and cash equivalents 6,220,813 ( 6,720,104)

Cash and cash equivalents at beginning of year 66,971,730 73,691,834

Cash and cash equivalents at end of year 5 73,192,543 66,971,730


STATEMENTS

9


LIFE DIVISION

CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES

(APPENDIX I)

December 31,

ASSETS Notes 2015 2014

LBP’000 LBP’000

Cash at banks 5 29,163,598 26,991,323

Investment securities at FVTPL 6 41,401,200 39,301,614

Insurance and other receivables 7 6,642,766 5,884,298

Due from reinsurers 8 129,032 82,396

Due from general insurance departments 16 15,152,393 9,907,237

Prepaid expenses and other assets 723,910 679,755

Investment securities at FVTOCI 9 2,357,633 2,361,224

Investment securities at amortized cost 10 11,391,917 10,433,905

Reinsurance assets 22 3,344,182 2,629,487

Furniture and equipment 13 492,071 559,978

Intangible assets 14 222,484 229,179

Total Assets 111,021,186 99,060,396

LIABILITIES

Due to banks 17 1,708,514 1,507,500

Insurance payable 3,539,649 3,150,703

Income tax payable 285,974 226,690

Accrued expenses and other credit balances 20 7,000,929 5,781,299

Life insurance contract liabilities 22 73,677,082 67,933,997

Provision for employees’ end-of-service indemnity 23 589,962 548,472


NET ASSETS

Reserve for asset revaluation surplus 285,723 285,723

Cumulative change in fair value of

investment securities at FVTOCI 29 1,163,035 1,166,626

Other restricted reserve 39 228,895 213,320

Retained earnings 21,614,768 17,532,844

Net assets attributable to owners of the life division 23,292,421 19,198,513

Non-controlling interests 926,655 713,222

Net assets 24,219,076 19,911,735

Total Liabilities and Net Assets 111,021,186 99,060,396


STATEMENTS

10


LIFE DIVISION

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

AND OTHER COMPREHENSIVE INCOME (APPENDIX II)

Year Ended

December 31,

Notes 2015 2014

LBP’000 LBP’000

Income:

Written premiums 43,637,793 36,764,867

Premiums allocated to insurance contract liabilities 22 ( 10,401,220) ( 8,600,311)

Insurance premiums 33,236,573 28,164,556

Reinsurers’ share of insurance premiums ( 7,894,650) ( 6,561,044)

Net insurance premiums 25,341,923 21,603,512

Fee and commission insurance income 1,126,178 956,886

Net insurance income 26,468,101 22,560,398

Interest and dividend income from investment securities 1,400,876 1,388,075

Interest income from loans on policies 11,539 13,010

Interest income from deposits with banks 5 535,928 464,242

Realized loss on sale of investment securities at FVTPL ( 47,747) ( 26,145)

Net change in fair value of investment

securities at FVTPL 6 ( 1,531,767) 437,903

Other income - 176,484

Total income 26,836,930 25,013,967

Expenses:

Claims paid ( 6,923,486) ( 8,529,282)

Reinsurers' share of claims paid 3,947,018 5,635,354

Change in insurance contract liabilities 22 ( 139,915) ( 1,857,416)

Reinsurers' share of change in insurance contract liabilities 714,695 ( 1,832,080)

Fees, commissions and other acquisition expenses ( 7,308,347) ( 5,491,059)

Other operating and administrative expenses 33 ( 10,384,560) ( 9,966,153)

Contribution to head quarters’ overheads 33 ( 2,200,000) ( 2,200,000)

Net foreign exchange losses ( 158,931) ( 106,047)

Income tax expense ( 72,472) ( 27,946)

Total expenses ( 22,525,998) ( 24,374,629)

Profit for the year 4,310,932 639,338

Attributable to:

Owners of the life division 4,097,499 538,728

Non-controlling interests 31 213,433 100,610

4,310,932 639,338


STATEMENTS

11


LIFE DIVISION

CONSOLIDATED STATEMENT OF CASH FLOWS

(APPENDIX III)

Year Ended

December 31,

Notes 2015 2014

LBP’000 LBP’000

Cash flows from operating activities:

Profit for the year 4,310,932 639,338

Income tax expense 72,472 27,946

Depreciation 33 105,063 109,147

Amortization of computer software 33 41,896 35,717

Provision for employees' end-of-service indemnity 23 92,167 129,901

Net change in fair value of investment securities at FVTPL 6 1,531,767 ( 437,903)

Interest income from deposits with banks ( 535,928) ( 464,242)

Accretion of premium/discount on investment securities

held at amortized cost 10 1,353 14,727

Net change in reinsurance assets ( 714,695) 1,832,080

Net change in insurance contract liabilities 22 139,915 1,857,416

5,044,942 3,744,127

Net change in investment securities at FVTPL ( 3,631,353) ( 5,003,497)

(Increase)/decrease in insurance and other receivables ( 758,468) 806,338

(Increase)/decrease in due from reinsurers ( 46,636) 36,027

Increase in prepaid expenses and other assets ( 44,155) ( 221,895)

Increase in insurance and other payables 388,946 705,634

Increase in accrued expenses and other credit balances 1,219,630 847,913

Increase in life insurance contract liabilities 5,603,170 3,972,179

Settlements of provision for employees' end of service indemnity 23 ( 50,677) ( 20,654)

Taxes paid ( 13,188) ( 82,792)

Net cash generated by operating activities 7,712,211 4,783,380

Cash flows from investing activities:

Net change in investment securities ( 965,161) 317,114

Increase in bank term deposits ( 240,206) ( 6,093,711)

Increase in intangible assets ( 35,201) ( 64,484)

Net increase in furniture and equipment ( 37,156) ( 44,606)

Interest received 539,852 413,677

Net cash used in investing activities ( 737,872) ( 5,472,010)

Cash flows from financing activities:

Increase in due to banks 201,014 -

Increase in due from general insurance departments ( 5,245,156) ( 316,836)

Net cash used in financing activities ( 5,044,142) ( 316,836)

Net increase/(decrease) in cash and cash equivalents 1,930,197 ( 1,005,466)

Cash and cash equivalents at beginning of year 7,270,921 8,276,387

Cash and cash equivalents at end of year 5 9,201,118 7,270,921


STATEMENTS

12


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


1. GENERAL INFORMATION

Arabia Insurance Company S.A.L. (the “Parent Company”) was incorporated in 1944 registered in the

Commercial Register in Beirut under No.1889, and is subject to Lebanese laws governing joint-stock

companies and insurance companies.

The main objective of the Group is to carry out insurance and reinsurance operations in addition to

short and long term placements and investments. The Parent Company’s headquarters are located at

Arabia House, Ein El Mreisseh, Beirut, Lebanon.

The operations network of the Group is spread over the following areas:

Nº.

Country of Branches

1. Lebanon - Headquarters 5

2. United Arab Emirates (branch) 4

3. Sultanate of Oman (branch) 2

4. Bahrain (branch) 1

5. Kuwait (branch) 1

6. Qatar (branch) 1

7. Jordan (subsidiary) 2

8. Syria (subsidiary) 6

22

13

2. NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSs)

2.1 New and revised IFRSs applied with no material effect on the consolidated financial

statements

The following new and revised IFRSs, which became effective for annual periods beginning on or

after January 1, 2015, have been adopted in these consolidated financial statements. The application of

these revised IFRSs has not had any material impact on the amounts reported for the current and prior

years but may affect the accounting for future transactions or arrangements.

• Annual Improvements to IFRSs 2010 - 2012 Cycle that includes amendments to IFRS 2, IFRS 3,

IFRS 8, IFRS 13, IAS 16, IAS 24 and IAS 38.

• Annual Improvements to IFRSs 2011 - 2013 Cycle that includes amendments to IFRS 1, IFRS 3,

IFRS 13 and IAS 40.

• Amendments to IAS 19 Employee Benefits to clarify the requirements that relate to how

contributions from employees or third parties that are linked to service should be attributed to

periods of service.

2.2 New and revised IFRS in issue but not yet effective

The Group has not yet applied the following new and revised IFRSs that have been issued but are not

yet effective:

New and revised IFRSs Effective for

Annual Periods

Beginning on or After

IFRS 14 Regulatory Deferral Accounts January 1, 2016

Amendments to IAS 1 Presentation of Financial Statements

relating to Disclosure initiative

January 1, 2016

Amendments to IFRS 11 Joint arrangements relating to

accounting for acquisitions of interests in joint operations

January 1, 2016

Amendments to IAS 16 Property, Plant and Equipment and IAS

38 Intangible Assets relating to clarification of acceptable methods

of depreciation and amortization

January 1, 2016

Amendments to IAS 16 Property, Plant and Equipment and IAS

41 Agriculture relating to bearer plants

January 1, 2016

14

Amendments to IAS 27 Separate Financial Statements relating to

accounting investments in subsidiaries, joint ventures and

associates to be optionally accounted for using the equity method

in separate financial statements

Effective for

Annual Periods


January 1, 2016

Amendments to IFRS 10 Consolidated Financial Statements,

IFRS 12 Disclosure of Interests in Other Entities and IAS 28

Investment in Associates and Joint Ventures relating to applying

the consolidation exception for investment entities

January 1, 2016

Annual Improvements to IFRSs 2012 - 2014 Cycle covering

amendments to IFRS 5, IFRS 7, IAS 19 and IAS 34

January 1, 2016

The final version of IFRS 9 Financial Instruments (2014) was

issued in July 2014 to replace IAS 39: Financial Instruments:

Recognition and Measurement. IFRS 9 (2014) incorporates

requirements for classification and measurement, impairment,

general hedge accounting and derecognition. The final version of

IFRS 9 introduces a) new classification for debt instruments that

are held to collect contractual cash flows with ability to sell, and

related measurement requirement consists of “fair value through

other comprehensive income (FVTOCI), and b) impairment of

financial assets applying expected loss model through 3 phases,

starting by 12 month expected impairment loss to be initiated on

initial recognition of the credit exposure, and life time

impairment loss to be recognized upon significant increase in

credit risk prior to the date the credit exposure is being impaired,

and phase 3 when the loan is effectively impaired. On phase 1

and 2 income from time value is recognized on the gross amount

of the credit exposure and in phase 3 income is recognized on the

net exposure.

January 1, 2018

IFRS 15 Revenue from Contracts with Customers

In May 2014, IFRS 15 was issued which established a single

comprehensive model for entities to use in accounting for revenue

arising from contracts with customers. IFRS 15 will supersede the

current revenue recognition guidance including IAS 18 Revenue,

IAS 11 Construction Contracts and the related interpretations

when it becomes effective.

January 1, 2018

15

Effective for

Annual Periods


The core principle of IFRS 15 is that an entity should recognize

revenue to depict the transfer of promised goods or services to

customers in an amount that reflects the consideration to which the

entity expects to be entitled in exchange for those goods or

services. Specifically, the standard introduces a 5-step approach to

revenue recognition:

• Step 1: Identify the contract(s) with a customer.

• Step 2: Identify the performance obligations in the contract.

• Step 3: Determine the transaction price.

• Step 4: Allocate the transaction price to the performance

obligations in the contract.

• Step 5: Recognise revenue when (or as) the entity satisfies a

performance obligation.

Under IFRS 15, an entity recognises when (or as) a performance

obligation is satisfied, i.e. when ‘control’ of the goods or services

underlying the particular performance obligation is transferred to

the customer. Far more prescriptive guidance has been added in

IFRS 15 to deal with specific scenarios. Furthermore, extensive

disclosures are required by IFRS 15.

Amendments to IFRS 10 Consolidated Financial Statements and

IAS 28 Investments in Associates and Joint Ventures (2011)

relating to the treatment of the sale or contribution of assets from

and investor to its associate or joint venture

Effective date deferred

indefinitely

IFRS 16 Leases

IFRS 16 specifies how an IFRS reporter will recognize, measure,

present and disclose leases. The standard provides a single lessee

accounting model, requiring lessees to recognize assets and

liabilities for all leases unless the lease term is 12 months or less

or the underlying asset has a low value. Lessors continue to

classify leases as operating or finance, with IFRS 16’s approach to

lessor accounting substantially unchanged from its predecessor,

IAS 17.

January 1, 2019

Except for IFRS 9 on the provisioning for impairment, the Directors of the Group do not anticipate

that the application of these amendments will have a significant effect on the Group’s financial

statements.

16

3. SIGNIFICANT ACCOUNTING POLICIES

Statement of Compliance:

The consolidated financial statements have been prepared in accordance with International Financial

Reporting Standards (IFRSs).

Basis of Preparation

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

following measured at fair value:

- Financial instruments designated at fair value through profit or loss.

- Investments in equities.

- Other financial assets not held in a business model whose objective is to hold assets to collect

contractual cash flows or whose contractual terms do not give rise solely to payments of

principal and interest.

- Derivative financial instruments.

Assets and liabilities are grouped according to their nature and are presented in an approximate order

that reflects their relative liquidity.

The principal accounting policies applied are set out below:

A. Basis of Consolidation:

The consolidated financial statements of Arabia Insurance Company S.A.L. incorporate the financial

statements of the Parent Company and enterprises controlled by the Parent Company and its subsidiaries.

Control is achieved when the Parent Company:

• has power over the investee;

• is exposed, or has rights, to variable returns from its involvement with the investee; and

• has the ability to use its power to affect its returns.

The Parent Company reassesses whether or not it controls an investee if facts and circumstances

indicate that there are changes to one or more of the three elements of control listed above.

When the Parent Company has less than a majority of the voting rights of an investee, it has power

over the investee when the voting rights are sufficient to give it the practical ability to direct the

relevant activities of the investee unilaterally. The Parent Company considers all relevant facts and

circumstances in assessing whether or not the Parent Company’s voting rights in an investee are

sufficient to give it power, including:

17

• the size of the Parent Company’s holding of voting rights relative to the size and dispersion of

holdings of the other vote holders;

• potential voting rights held by the Parent Company, other vote holders or other parties;

• rights arising from other contractual arrangements; and

• any additional facts and circumstances that indicate that the Parent Company has, or does not have,

the current ability to direct the relevant activities at the time that decisions need to be made,

including voting patterns at previous shareholders’ meetings.

Consolidation of a subsidiary begins when the Parent Company obtains control over the subsidiary and

ceases when the Parent Company loses control of the subsidiary. Income and expenses of a subsidiary

acquired or disposed of during the year are included in the statement of profit or loss and other

comprehensive income from the date the Parent Company gains control until the date the Parent

Company ceases to control the subsidiary.

Non-controlling interests represent the portion of profit or loss and net assets of subsidiaries not

owned directly or indirectly by the Parent Company. Profit or loss and each component of other

comprehensive income (OCI) are attributed to the equity holders of the Parent Company and to the

non-controlling interests, even if this results in the non-controlling interests having a deficit balance.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their

accounting policies into line with the Group’s accounting policies.

All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions

between members of the Group are eliminated in full on consolidation.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an

equity transaction. If the Parent Company loses control over a subsidiary, it:

• Derecognizes the assets (including goodwill) and liabilities of the subsidiary;

• Derecognizes the carrying amount of any non-controlling interests;

• Derecognizes the cumulative translation differences recorded in equity;

• Recognizes the fair value of the consideration received;

• Recognizes the fair value of any investment retained;

• Recognizes any surplus or deficit in profit or loss; and

• Reclassifies the parent’s share of components previously recognized in OCI to profit or loss or

retained earnings, as appropriate, as would be required if the Parent Company had directly

disposed of the related assets or liabilities.

18

The consolidated subsidiaries consist of:

Legal Percentage

Location of Ownership

Name of Company of Company 2015 2014 Activities

% %

Arabia S.A.L. (Holding) Lebanon 100 100 Investment vehicle

Arabia Insurance International B.S.C. Bahrain 100 100 Service Company (Offshore)

UPI (Services) Limited Cyprus 100 100 Service Company (Offshore)

Arabia Insurance Company – Jordan Jordan 51.44 51.44 Direct insurance operations

Arabia Insurance Company – Syria Syria 50.06 50.06 Direct insurance operations

Al-Mashriq Financial

Investments Co. S.A.L. Lebanon 89.07 89.05 Investment Company

Arabia Insurance Brokers S.A.R.L. Lebanon 100 100 Insurance brokerage – Dormant

Lawrence S.A.L (Holding) Lebanon 100 100 Holding Company

B. Business Combinations:

Acquisitions of businesses are accounted for using the acquisition method. The consideration

transferred in a business combination is measured at fair value, which is calculated as the sum of the

acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to

the former owners of the acquiree and the equity interests issued by the Group in exchange for control

of the acquiree. Acquisition-related costs other than those associated with the issue of debt or equity

securities are generally recognized in profit or loss as incurred.

The consideration transferred does not include amounts related to the settlement of pre-existing

relationships. Such amounts are generally recognized in profit or loss.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any

non-controlling interests in the acquiree, and the fair value of the acquirer's previously held equity

interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets

acquired and the liabilities assumed. When the excess is negative, a bargain purchase gain is

recognized immediately in profit or loss.

Non-controlling interests that are present ownership interests and entitle their holders to a

proportionate share of the entity's net assets in the event of liquidation may be initially measured either

at fair value or at the non-controlling interests' proportionate share of the recognized amounts of the

acquiree's identifiable net assets. The choice of measurement basis is made on a transaction-by-

transaction basis. Other types of non-controlling interests are measured at fair value or, when

applicable, on the basis specified in another IFRS.

Any contingent consideration payable is recognized at fair value at the acquisition date. If the

contingent consideration is classified as equity, it is not remeasured and settlement is accounted for

within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are

recognized in profit or loss.

19

C. Foreign Currencies:

The consolidated financial statements are presented in Lebanese Pounds (“LBP”) which is the reporting

currency of the Parent Company. The primary currency of the economic environment in which the

Parent Company operates (functional currency) is the U.S. Dollar (“USD”). The exchange rate of the

USD against the LBP has been constant since many years.

In preparing the financial statements of each individual group entity, transactions in currencies other

than the entity's functional currency (foreign currencies) are recognized at the rates of exchange

prevailing at the dates of the transactions. At the end of each reporting period, monetary items

denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary

items carried at fair value that are denominated in foreign currencies are retranslated at the rates

prevailing at the date when the fair value was determined. Non-monetary items that are measured in

terms of historical cost in a foreign currency are not retranslated.

Exchange differences on monetary items are recognized in profit or loss in the period in which they

arise except for exchange differences on transactions entered into in order to hedge certain foreign

currency risks, and except for exchange differences on monetary items receivable from or payable to a

foreign operation for which settlement is neither planned nor likely to occur in the foreseeable future,

which are recognized in other comprehensive income, and presented in the translation reserve in

equity. These are recognized in profit or loss on disposal of the net investment.

For the purposes of presenting consolidated financial statements, the assets and liabilities of the

Group's foreign operations are translated into Lebanese Pounds using exchange rates prevailing at the

end of each reporting period. Income and expense items are translated at the average exchange rates

for the period, unless exchange rates fluctuate significantly during that period, in which case the

exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are

recognized in other comprehensive income and accumulated in equity (attributed to non-controlling

interests as appropriate). Such exchange differences are recognized in profit or loss in the period in

which the foreign operation is disposed of.

In addition, in relation to a partial disposal of a subsidiary that does not result in the Group losing

control over the subsidiary, the proportionate share of accumulated exchange differences are re-

attributed to non-controlling interests and are not recognized in profit or loss.

D. Recognition and Derecognition of Financial Assets and Financial Liabilities:

Financial assets and financial liabilities are initially recognized on the trade date at which the Group

becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are

directly attributable to the acquisition or issue of financial assets and financial liabilities (other than

financial assets and financial liabilities at fair value through profit or loss) are added to or deducted

from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair

value through profit or loss are recognized immediately in profit or loss.

20

The Group derecognizes a financial asset only when the contractual rights to the cash flows from the

asset expire, or when it transfers the financial asset and substantially all the risks and rewards of

ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the

risks and rewards of ownership and continues to control the transferred asset, the Group recognizes its

retained interest in the asset and an associated liability for amounts it may have to pay. If the Group

retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group

continues to recognize the financial asset and also recognizes a collateralized borrowing for the

proceeds received.

On derecognition of a financial asset measured at amortized cost, the difference between the asset’s

carrying amount and the sum of the consideration received and receivable is recognized in profit or

loss.

Upon derecognition of a financial asset that is classified as fair value through other comprehensive

income, the cumulative gain or loss previously accumulated in the investments revaluation reserve is

not reclassified to profit or loss, but is reclassified to retained earnings.

The Group derecognizes financial liabilities when, and only when, the Group’s obligations are

discharged, cancelled or they expire. The difference between the carrying amount of the financial liability

derecognized and the consideration paid and payable, including any non-cash assets transferred or

liabilities assumed, is recognized in profit or loss

E. Classification of Financial Assets:

All recognized financial assets are measured in their entirety at either amortized cost or fair value,

depending on their classification.

Debt Instruments:

Non-derivative debt instruments that meet the following two conditions are subsequently measured at

amortized cost less impairment loss (except for debt investments that are designated as at fair value

through profit or loss on initial recognition):

• They are held within a business model whose objective is to hold the financial assets in order to

collect the contractual cash flows, rather than to sell the instrument prior to its contractual

maturity to realize its fair value changes, and

• The contractual terms of the financial asset give rise on specified dates to cash flows that are

solely payments of principal and interest on the principal amount outstanding.

Debt instruments which do not meet both of these conditions are measured at fair value through profit

or loss (“FVTPL”). In addition, debt instruments that meet the amortized cost criteria but are

designated as at FVTPL are measured at FVTPL.

21

Even if a debt instrument meets the two amortized cost criteria above, it may be designated as at

FVTPL upon initial recognition if such designation eliminates or significantly reduces a measurement

or recognition inconsistency that would otherwise arise from measuring assets or liabilities or

recognizing the gains and losses on them on different bases.

Equity Instruments:

Investments in equity instruments are classified as at FVTPL, unless the Group designates an investment

that is not held for trading as at fair value through other comprehensive income (“FVTOCI”) on initial

recognition (see below).

Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any

gains or losses arising on re-measurement recognized in profit or loss.

On initial recognition, the Group can make an irrevocable election (on an instrument-by-instrument

basis) to designate investments in equity instruments as at fair value through other comprehensive

income (“FVTOCI”). Investments in equity instruments at FVTOCI are measured at fair value. Gains

and losses on such equity instruments are recognized in other comprehensive income, accumulated in

equity and are never reclassified to profit or loss. Only dividend income is recognized in profit or loss

unless the dividend clearly represents a recovery of part of the cost of the investment, in which case it

is recognized in other comprehensive income. Cumulative gains and losses recognized in other

comprehensive income are transferred to retained earnings on disposal of an investment.

Designation at FVTOCI is not permitted if the equity investment is held for trading.

A financial asset is held for trading if:

• it has been acquired principally for the purpose of selling it in the near term; or

• on initial recognition it is part of a portfolio of identified financial instruments that the Group

manages together and has evidence of a recent actual pattern of short-term profit-taking; or

• it is a derivative that is not designated and effective as a hedging instrument or a financial

guarantee.

Reclassification:

Financial assets are reclassified between FVTPL and amortized cost or vice versa, if and only if, the

Group’s business model objective for its financial assets changes so its previous model assessment

would no longer apply. When reclassification is appropriate, it is done prospectively from the

reclassification date.

Reclassification is not allowed where:

• the 'other comprehensive income' option has been exercised for a financial asset, or

• the fair value option has been exercised in any circumstance for a financial instrument.

22

F. Financial Liabilities and Equity Instruments:

Classification as debt or equity:

Debt and equity instruments issued by a group entity are classified as either financial liabilities or as

equity in accordance with the substance of the contractual arrangements and the definitions of a

financial liability and an equity instrument.

An equity instrument is any contract that evidences a residual interest in the assets of an entity after

deducting all of its liabilities. Equity instruments issued by the Group are recognized at the proceeds

received, net of direct issue costs.

Repurchase of the Parent Company’s own equity instruments is recognized and deducted directly in

equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue, or cancellation of the

Parent Company’s own equity instruments.

Financial Liabilities:

Financial Liabilities that are not held-for-trading and are not designated as at FVTPL are subsequently

measured at amortized cost.

Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or it is

designated as at FVTPL.

A financial liability other than a financial liability held for trading may be designated as at FVTPL

upon initial recognition if:

• such designation eliminates or significantly reduces a measurement or recognition

inconsistency that would otherwise arise; or

• the financial liability forms part of a group of financial assets or financial liabilities or both,

which is managed and its performance is evaluated on a fair value basis, in accordance with the

Group’s documented risk management or investment strategy, and information about the

grouping is provided internally on that basis; or

• it forms part of a contract containing one or more embedded derivatives, and the entire

combined contract is designated as at FVTPL in accordance with IFRS 9.

G. Offsetting:

Financial assets and liabilities are set-off and the net amount is presented in the consolidated statement of

financial position when, and only when, the Group has a legal right to set-off the amounts or intends

either to settle on a net basis or to realize the asset and settle the liability simultaneously.

23

H. Fair Value Measurement of Financial Instruments:

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly

transaction between market participants at the measurement date. The fair value measurement is based

on the presumption that the transaction to sell the asset or transfer the liability takes place either:

• In the principal market for the asset or liability; or

• In the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible by the Group. The fair value of an

asset or a liability is measured using the assumptions that market participants would use when pricing

the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant's ability to

generate economic benefits by using the asset in its highest and best use or by selling it to another

market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient

data are available to measure fair value, maximizing the use of relevant observable inputs and

minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are

categorized within the fair value hierarchy, described as follows, based on the lowest level input that is

significant to the fair measurement as a whole:

• Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities

• Level 2 – Valuation techniques for which the lowest level input that is significant to the fair

value measurement is directly or indirectly observable.

• Level 3 – Valuation techniques for which the lowest level input that is significant to the fair

value measurement is unobservable.

For assets and liabilities that are recognized in the financial statements on a recurring basis, the Group

determines whether transfers have occurred between Levels in the hierarchy by re-assessing

categorization (based on the lowest level input that is significant to the fair value measurement as a

whole) at the end of each reporting period.

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on

the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value

hierarchy as explained above.

I. Impairment of Financial Assets:

Financial assets carried at amortized cost are assessed for indicators of impairment at the reporting date.

Financial assets are impaired where there is objective evidence that, as a result of one or more events that

occurred after the initial recognition of the asset, a loss event has occurred which has an impact on the

estimated future cash flows of the financial asset.

24

Objective evidence that an impairment loss related to financial assets has been incurred can include

information about the debtors’ or issuers’ liquidity, solvency and business and financial risk exposures

and levels of and trends in delinquencies for similar financial assets, taking into account the fair value of

collaterals and guarantees.

The Group considers evidence of impairment for assets measured at amortized cost at both specific asset

and collective level.

Impairment losses on assets carried at amortized cost are measured as the difference between the carrying

amount of the financial assets and the corresponding estimated recoverable amounts. Losses are

recognized in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases, the

previously recognized impairment loss is reversed through profit or loss to the extent that the carrying

amount of the financial asset at the date the impairment is reversed does not exceed what the amortized

cost would have been, had the impairment not been recognized.

J. Derivative Financial Instruments:

Derivatives are initially recognized at fair value at the date a derivative contract is entered into and are

subsequently remeasured to their fair value at each reporting date.

The resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated

and effective as a hedging instrument, in which event the timing of the recognition in profit or loss

depends on the nature of the hedge relationship.

Embedded Derivatives

Derivatives embedded in other financial instruments or other host contracts with embedded derivatives

are treated as separate derivatives when their risks and characteristics are not closely related to those of

the host contracts and the host contract:

• is not measured at fair value with changes in fair value recognized in profit or loss.

• is not an asset within the scope of IFRS 9

K. Property and Equipment:

Property and equipment except for buildings acquired prior to year 1993 are stated at historical cost, less

accumulated depreciation and impairment loss, if any. Buildings acquired prior to year 1993 are stated at

their carrying amounts adjusted on the basis of net realizable value, based on market prices prevailing at

the end of year 1993 less accumulated depreciation and impairment loss, if any. Resulting revaluation

surplus was reflected under “Equity”.

Depreciation of property and equipment, other than land and advance payments on capital expenditures is

calculated systematically using the straight-line method over the estimated useful lives of the related

assets as follows:

Buildings 40 years

Furniture and Equipment 3 to 10 years

25

Properties in the course of construction for production, supply or administrative purposes are carried at

cost, less any recognized impairment loss. Cost includes professional fees and, for qualifying assets,

borrowing costs capitalized in accordance with the Group’s accounting policy. Such properties are

classified to the appropriate categories of property, plant and equipment when completed and ready for

intended use. Depreciation of these assets, on the same basis as other property assets, commences

when the assets are ready for their intended use.

L. Intangible Assets:

Intangible assets consisting of computer software are amortized over a period of five years and are

subject to impairment testing. Subsequent expenditure on software assets is capitalized only when it

increases the future economic benefits embodied in the specific asset to which it relates. All other

expenditure is expensed as incurred.

M. Impairment of Tangible and Intangible Assets:

At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to

determine whether there is any indication that those assets have suffered an impairment loss. If any

such indication exists, the recoverable amount of the asset is estimated in order to determine the extent

of the impairment loss (if any).

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in

use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate

that reflects current market assessments of the time value of money and the risks specific to the asset

for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying

amount of the asset is reduced to its recoverable amount. An impairment loss is recognized

immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case

the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset

(cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the

increased carrying amount does not exceed the carrying amount that would have been determined had

no impairment loss been recognized for the asset (cash-generating unit) in prior years. A reversal of

an impairment loss is recognized immediately in profit or loss, unless the relevant asset is carried at a

revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

26

N. Provision for Employees' End-of-Service Indemnities:

Obligations for contributions to defined employees’ benefits are recognized as an expense on a current

basis.

The Group provides for the employees’ end-of-service indemnities in accordance with local laws and

regulations governing these indemnities in the countries where the Group operates.

Employees' End-of-Service Indemnities: (Under the Lebanese Jurisdiction)

The provision for staff termination indemnities is based on the liability that would arise if the

employment of all the staff were voluntarily terminated at the reporting date. This provision is

calculated in accordance with the directives of the Lebanese Social Security Fund and Labor laws

based on the number of years of service multiplied by the sum of the last monthly basic salary paid and

the monthly average of the last 12 months’ additional benefits paid and less contributions paid to the

Lebanese Social Security National Fund and interest accrued by the Fund.

O. Provisions:

Provision is recognized if, as a result of a past event, the Group has a present legal or constructive

obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will

be required to settle the obligation. Provisions are determined by discounting the expected future cash

flows at a pre-tax rate that reflects current market assessments of the time value of money and, where

appropriate, the risks specific to the liability.

P. Insurance contracts:

An insurance contract is a contract under which one party (the insurer) accepts significant insurance

risks from another party (the policyholder) by agreeing to compensate the policyholder if a specified

uncertain future event (the insured event) adversely affects the policyholder. Such contracts may also

transfer financial risk.

The insurance contracts are classified in the following categories depending on the nature of the risk

insured:

- Non-life insurance contracts:

These contracts are marine, motor, property, general accidents, workmen’s compensation and medical

insurance contracts.

27

Claims and loss adjustment expenses

Claims and loss adjustment expenses are charged to the statement of profit of loss as incurred, based

on the estimated liability for compensation owed to insurance contract holders. Such expenses include

direct and indirect claims settlement costs and arise from events that have occurred up to the statement

of financial position date even if they have not yet been reported to the Group. The Group does not

discount its liabilities for unpaid claims. Liabilities for unpaid claims are estimated using the input of

assessments for individual cases reported to the Group and the Company's statistical analysis for the

claims Incurred But Not Reported (''IBNR'') and claims Incurred But Not Enough Reserved (IBNER).

Unearned Premiums Reserve (UPR)

Unearned premiums reserve represents the part of written premiums, including accessories and other

fees, that is estimated to be earned in subsequent periods. Unearned premiums are calculated using the

prorata temporis method except for the marine department which is computed on the basis of 25% of

written premiums. The change in the provision is recorded in the consolidated statement of profit or

loss to recognize revenue over the period of the risk.

- Life Insurance Contracts:

The life insurance contracts are classified in the following categories:

Traditional products:

This category consists of term life (individual or group) and classic combined assurances

products (various traditional endowment plans).

Universal Life Insurance Contracts with discretionary participation features:

These insurance contracts contain discretionary participation features (DPF) which entitle the

contract holder to receive, as a supplement to the standard guaranteed benefits, additional

bonuses:

• Whose amount or timing is contractually at the discretion of the insurer; and

• That are based on realized and/or unrealized investment returns on a specified pool of assets held

by the issuer.

Contracts on behalf of life insured where the insured bear the investment risk with significant

insurance risk (Unit Linked):

These contracts transfer the financial risk to the policyholder and at the same time contain certain

significant insurance risk.

28

Unbundling of deposit components:

Some life insurance contracts contain both an insurance component and a deposit component.

The Group has measured the deposit component separately and presented the life insurance

contracts by applying the principle of unbundling the insurance components from the deposit

components which are recognized in the financial statements as follows:

Insurance Components:

Insurance components are reflected separately under income together with the elements of the

insurance income related to loading and charges and premiums in the technical pipeline, which

are recognized as income on accrual basis over the benefiting period.

Deposit Components:

Savings and/or deposit components of premiums are recognized as liabilities related to insurance

contracts. These liabilities, including unit-linked products, are increased or decreased by the

credit interest, either positive or negative change in the unit prices of the corresponding

underlying investment portfolio, policy administration and fund management fees, mortality and

surrender charges, withdrawals, and other factors impacting the value of the deposit component

of the insurance contracts.

Mathematical provision for life insurance contracts:

Provisions for traditional products are calculated as the difference between the actuarial present

value of the branch’s future liabilities and the actuarial present value of the policyholders’ future

premiums based on the tables of mortality and the actuarial interest rates as per the original

tariffs. In case losses arise from liability adequacy tests, an additional provision is raised.

The provisions for universal/unit-linked life insurance policies are calculated using the

retrospective method (i.e. based on the savings account value).

At each reporting date, an actuarial valuation of the life portfolio is carried out by a professional

independent actuary and a technical assessment is performed in respect of unearned revenues.

Moreover, outstanding liabilities of the accumulation of deposit components and profits related

are also based on an actuarial technical assessment. Prevailing laws require that such actuarial

valuation be carried out annually.

Provision for outstanding claims

The provision for outstanding claims is made for all claims reported to the Group and still unpaid

at the reporting date. Claims are recognized in the statement of profit or loss when incurred

based on estimated benefits.

29

Q. Revenue and Expense Recognition:

Insurance premiums and other insurance revenues are recognized as income when the insurance

policies are issued.

Interest income and expense are recognized on an accrual basis, taking into account of the principal

outstanding and the applicable interest rate.

Rental income from property which is leased under operating leases is recognized on a straight line

basis over the term of the relevant lease.

Fee and commission insurance income consists primarily of reinsurance and profit commission,

policyholder administration fees and other contract fees. Reinsurance commissions receivable are

deferred in the same way as acquisition cost. All other fee and commission income are recognized as the

services are provided.

Dividend income is recognized when the right to receive payment is established.

R. Income Tax:

Income tax expense represents the sum of the tax currently payable and deferred tax. Income tax is

recognized in the statement of profit or loss except to the extent that it relates to items recognized

directly in other comprehensive income, in which case it is recognized in other comprehensive

income.

Current tax is the expected tax payable on the taxable income for the year, using rates enacted at the

reporting date. Income tax payable is reflected in the consolidated statement of financial position net

of taxes previously settled in the form of withholding tax.

Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the

financial statements and the corresponding tax base used in the computation of taxable profit, and are

accounted for using the balance sheet liability method. Deferred tax liabilities are generally

recognized for all taxable temporary differences and deferred tax assets are recognized to the extent

that it is probable that taxable profits will be available against which deductible temporary differences

can be utilized.

S. Liability Adequacy Test:

Liability adequacy tests are performed for portfolios of contracts at each reporting date, in accordance

with the Group’s manner of acquiring, servicing and measuring the profitability of its insurance

contracts. Net unearned premiums are tested to determine whether they are sufficient to cover related

expected claims, loss adjustment expenses, commission and maintenance expenses using current

assumptions. If a premium deficiency is identified, the entire deficiency is recognized in income and a

premium deficiency reserve (PDR) is appropriated.

30

The Group does not discount its liabilities for unpaid claims as substantially all claims are expected to

be paid within one year of the reporting date.

T. Reinsurance Contracts:

Contracts entered into by the Group with reinsurers under which the Group is compensated for losses

on one or more contracts issued by the Group and that meet the classification requirements for

insurance contracts are classified as reinsurance contracts. Insurance contracts entered into by the

Group under which the contract holder is another insurer are included with insurance contracts.

The benefits to which the Group is entitled under its reinsurance contracts are recognized as

receivables from reinsurance companies under reinsurance assets in the statement of financial position.

Reinsurance share of premiums and claims is computed on the basis of effective outwards. The

reinsurers’ portion towards the above outstanding claims, claims incurred but not reported and

unearned premiums is classified as reinsurance assets in the statement of financial position.

The Group assesses its reinsurance assets for impairment on a regular basis. If there is objective

evidence that the reinsurance asset is impaired, the Group reduces the carrying amount of the

reinsurance assets to its recoverable amount and recognizes that impairment loss in the profit or loss

for the year.

U. Insurance Receivables and Payables:

Receivables and payables arising under insurance contracts are recognized when due and measured at

amortized cost. A provision for impairment is established when there is objective evidence that, as a

result of one or more events that occurred after the initial recognition, the estimated future cash flows

have been impacted.

V. Deferred Acquisition Costs:

Deferred acquisition cost represents the deferred portion of the commission paid to brokers and

sponsors. Deferred acquisition costs are amortized systematically over the life of the contracts and

tested for impairment at each reporting date. Any amount not recoverable is expensed. They are

derecognized when the related contracts are settled or disposed of.

W. Treasury Shares:

Treasury shares are carried at cost and presented in the consolidated statement of financial position as

a deduction from Equity.

31

X. Distribution of Dividends:

The appropriation of proposed dividends from retained earnings is reflected separately in the statement

of changes in equity based on the Board’s recommendation, and reversed to liability in the year it is

approved by the General Assembly of Shareholders.

Y. Consolidated Assets, Liabilities, and Net Assets of the Life Division:

Consolidated assets, liabilities, and net assets of the Life Division, comprising the life division of

Arabia Insurance Company S.A.L. and the life division of Arabia Insurance Company ltd. – Jordan,

are presented in a separate statement for the Life Division (Appendix I, II, III) and included as a line

item in the consolidated financial statements.

Z. Cash and Cash Equivalents:

Cash and cash equivalents comprise unrestricted cash on hand and demand deposits and other short term

deposits with original maturity period not exceeding three months.

AA. Investment Property:

Investment property is carried at cost less accumulated depreciation and impairment loss, if any.

4. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group’s accounting policies, which are described in note 3, the management

are required to make judgements, estimates and assumptions about the carrying amounts of assets and

liabilities that are not readily apparent from other sources. The estimates and associated assumptions

are based on historical experience and other factors that are considered to be relevant. Actual results

may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting

estimates are recognised in the period in which the estimate is revised if the revision affects only that

period or in the period of the revision and future periods if the revision affects both current and future

periods.

32

Critical Accounting Judgments:

A. Critical accounting judgments in applying the Group’s accounting policies:

Classification of Financial Assets:

Business Model:

The business model test requires the Group to assess whether its business objective for financial

assets is to collect the contractual cash flows of the assets rather than realize their fair value change

from sale before their contractual maturity. The Group considers at which level of its business

activities such assessment should be made. Generally, a business model can be evidenced by the

way business is managed and the information provided to management. However the Group’s

business model can be to hold financial assets to collect contractual cash flows even when there are

some sales of financial assets. While IFRS 9 provides some situations where such sales may or may

not be consistent with the objective of holding assets to collect contractual cash flows, the

assessment requires the use of judgment based on facts and circumstances.

In determining whether its business model for managing financial assets is to hold assets in order to

collect contractual cash flows the Group considers:

• The frequency and volume of sales;

• The reasons for any sales;

• How management evaluates the performance of the portfolio;

• The objectives for the portfolio.

Characteristics of the Financial Asset:

Once the Group determines that its business model is to hold the assets to collect the contractual

cash flows, it exercises judgment to assess the contractual cash flows characteristics of a financial

asset. In making this judgment, the Group considers the contractual terms of the acquired asset to

determine that they give rise on specific dates, to cash flows that solely represent principal and

principal settlement and accordingly may qualify for amortized cost accounting.

Features considered by the Group that would be consistent with amortized cost measurement

include:

• Fixed and / or floating interest rate;

• Caps, floors, collars;

• Prepayment options.

33

Features considered by the Group that would be inconsistent with amortized cost measurement

include:

• Leverage (i.e. options, forwards and swaps);

• Conversion options;

• Inverse floaters;

• Variable rate coupons that reset periodically;

• Triggers that result in a significant reduction of principal, interest or both.

Key Sources of Estimation Uncertainty:

The following are the key assumptions concerning the future, and other key sources of estimation

uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the

carrying amounts of assets and liabilities within the next financial year.

Impairment of insurance receivables:

The recoverable amount of insurance receivables is estimated when there is indication of incomplete

collectibility of these receivables. The determination of impairment requires management to assess the

solvency and financial liquidity of policyholders and reinsurers. Moreover, percentages of collections

are reviewed based on the historical information of the Group and the detailed studies conducted

during the year, in addition to the opinion of the legal management of the Group. The difference

between the recoverable amounts and the book value is recognized as an expense in the statement of

profit or loss. The difference between the actual amounts collected in future periods and those

previously estimated is recognized in the statement of profit or loss at the date of collection.

The ultimate liability arising from claims made under insurance contracts:

The estimate of ultimate liability arising from the claims made under insurance contracts is the

Group’s most critical accounting estimate. There are sources of uncertainty that need to be considered

in the estimate of the liability that the Group will eventually pay for such claims. Estimates have to be

made both for expected ultimate cost of claims reported at the reporting date and for the expected

ultimate cost of claims incurred but not reported (“IBNR”) at the reporting date. Liabilities for unpaid

reported claims are estimated using the input of assessments for individual cases reported to the Group

and the management estimates based on past claims settlement trends for the claims incurred but not

reported. Claim liabilities are also tested for adequacy as of the reporting date and the related

provisions are adjusted accordingly.

Determining Fair Values:

The determination of fair value for financial assets for which there is no observable market price requires

the use of valuation techniques as described in Note 3H. For financial instruments that trade infrequently

and have little price transparency, fair value is less objective, and requires varying degrees of judgment

depending on liquidity, concentration, uncertainly of market factors, pricing assumptions and other risks

affecting the specific instrument.

34

Unobservable inputs are used to measure fair value to the extent that observable inputs are not

available, thereby allowing for situations in which there is little, if any, market activity for the asset or

liability at the measurement date. However, the fair value measurement objective should remain the

same; that is, an exit price from the perspective of market participants. Unobservable inputs are

developed based on the best information available in the circumstances, which may include the

reporting entity's own data.

5. CASH AND BANKS

This caption consists of the following: December 31, 2015

General

Insurance Life

Departments Division Total

LBP’000 LBP’000 LBP’000

Cash on hand 677,638 - 677,638

Checks for collection 2,829 - 2,829

Demand deposits with banks 21,661,635 5,649,127 27,310,762

Term deposits with banks (original maturity

less than 3 months) 50,850,441 3,551,991 54,402,432

Cash and cash equivalents 73,192,543 9,201,118 82,393,661


more than 3 months) 13,687,890 7,101,474 20,789,364

Bank deposits pledged in guarantee of insurance business 72,485,340 12,763,776 85,249,116

159,365,773 29,066,368 188,432,141

Accrued interest receivable 695,294 97,230 792,524

160,061,067 29,163,598 189,224,665

December 31, 2014

General

Insurance Life

Departments Division Total

LBP’000 LBP’000 LBP’000

Cash on hand 470,925 - 470,925

Demand deposits with banks 23,579,641 6,157,350 29,736,991


less than 3 months) 42,921,164 1,113,571 44,034,735

Cash and cash equivalents 66,971,730 7,270,921 74,242,651


more than 3 months) 18,662,179 8,170,741 26,832,920

Bank deposits pledged in guarantee of insurance business 72,901,567 11,454,303 84,355,870

158,535,476 26,895,965 185,431,441

Accrued interest receivable 521,098 95,358 616,456

159,056,574 26,991,323 186,047,897

35

Cash and banks of the general insurance departments and life division are composed of the following

currencies (excluding accrued interest receivable):

General

Insurance Departments Life Division

December 31, December 31,

2015 2014 2015 2014

LBP’000 LBP’000 LBP’000 LBP’000

Lebanese Pound 14,818,956 13,727,069 1,340,938 1,181,794

U.S Dollar 29,238,632 29,034,106 3,905,460 3,828,716

Omani Riyal 51,535,779 49,972,786 5,439,654 5,402,653

U.A.E Dirham 11,814,709 12,595,299 13,462,086 11,259,766

Euro 357,006 231,342 141,950 43,564

Kuwaiti Dinar 11,738,167 10,089,086 133,585 309,712

Bahraini Dinar 13,154,564 12,834,619 2,733,133 2,787,915

Syrian Pound 6,206,198 10,198,166 - -

Jordanian Dinar 18,934,003 17,883,408 1,680,316 1,505,507

Qatar Riyal 1,520,814 1,869,928 222,933 569,770

Other Currencies 46,945 99,667 6,313 6,568

159,365,773 158,535,476 29,066,368 26,895,965

Most of the deposits in Kuwaiti Dinar, UAE Dirham, Bahraini Dinar, Omani Riyal, and Jordanian

Dinar shown above are pledged in favor of the authorities in the countries concerned, in guarantee of

the insurance business for the general insurance departments and the life division.

Bank term deposits and deposits pledged in guarantee of insurance business mature within one year.

Interest earned on the deposits of the general insurance departments and the life division amounting to

LBP3.8billion and LBP536million respectively for the year 2015 (LBP4billion and LBP464million,

respectively for the year 2014) is reflected in the accompanying consolidated statement of profit or

loss of the general insurance departments and the life division, respectively.

36

6. INVESTMENT SECURITIES AT FAIR VALUE THROUGH PROFIT OR LOSS (FVTPL)

(a) General Insurance Departments: December 31, 2015 Fair Unrealized Average Value at Gain/(loss) Interest Currency Year End For the Year Rate LBP’000 LBP’000 % Foreign corporate bonds - quoted: U.S. Dollar 274,736 ( 37,259) 7.81 Euro 17,321 ( 7,761) 6.00 292,057 ( 45,020) Equity securities - quoted: U.S. Dollar 2,571,840 ( 511,382) Euro 2,396,699 ( 252,013) Jordanian Dinar 2,145,545 ( 433,522) UAE Dirham 11,576 3,202 Syrian Pound 130,340 14,415 Franc Suisse 256,892 ( 23,234) 7,512,892 ( 1,202,534) Funds - quoted: U.S. Dollar 5,962,453 39,623 Euro 848,988 ( 9,046) 6,811,441 30,577 Funds - unquoted: U.S. Dollar 241,879 ( 925) 241,879 ( 925) 14,858,269 ( 1,217,902) December 31, 2014 Fair Unrealized Average Value at Gain/(loss) Interest Currency Year End For the Year Rate LBP’000 LBP’000 % Foreign corporate bonds - quoted: U.S. Dollar 463,597 984 7.54 Euro 27,892 ( 3,330) 6.00 491,489 ( 2,346) Equity securities - quoted: U.S. Dollar 2,228,134 ( 331,202) Euro 2,289,817 ( 222,753) Jordanian Dinar 2,631,164 465,861 UAE Dirham 174,920 ( 23,300) Syrian Pound 208,809 ( 5,239) Franc Suisse 215,234 ( 7,632) 7,748,078 ( 124,265) Funds - quoted: U.S. Dollar 5,922,830 176,681 Euro 1,328,034 35,961 7,250,864 212,642 Funds - unquoted: Jordanian Dinar 268,155 - U.S. Dollar 242,803 1,867 510,958 1,867 16,001,389 87,898

37

The investment securities at FVTPL are distributed by country of origin of issuer as of December 31,

2015 and 2014 as follows:

December 31,

2015 2014

LBP’000 LBP’000

America 2,963,576 1,824,604

Europe 8,946,120 10,249,068

Asia/Middle East 2,948,573 3,927,717

14,858,269 16,001,389

The movement of investment securities at FVTPL during 2015 and 2014 is summarized as follows:

2015 2014

LBP’000 LBP’000

Balance at January 1 16,001,389 13,664,279

Additions 14,770,266 13,956,734

Sales ( 14,247,810) ( 11,135,400)

Change in fair value ( 1,217,902) 87,898

Effect of foreign currency fluctuations ( 447,674) ( 572,122)

Balance at December 31 14,858,269 16,001,389

(b) Life Division:

The investment securities at FVTPL of the life division consist of unit-linked and other investment

securities as follows:

December 31,

2015 2014

LBP’000 LBP’000

Unit-linked investment securities 39,572,922 38,651,228

Other investment securities 1,828,278 650,386

41,401,200 39,301,614

38

Unit-linked investment securities:

The movement of the unit-linked investment securities during 2015 and 2014 is summarized as

follows:

2015 2014

LBP’000 LBP’000


Additions 4,752,904 5,185,516

Sales ( 642,764) -

Transfer to other investment securities ( 1,720,183) -

Change in fair value ( 1,468,263) 367,430


Other investment securities:

The other investment securities consist of the following:

December 31, 2015 Fair Unrealized Average Value at Gain/(loss) Interest Currency Year End For the Year Rate

LBP’000 LBP’000 % Foreign bonds - quoted: U.S. Dollar 1,091,444 ( 25,533) 4 Euro 2 - 5.15 1,091,446 ( 25,533) Equity securities – quoted: Jordanian Dinar 107,906 ( 41,859) Euro 25,721 3,888 133,627 ( 37,971) Funds – quoted: U.S. Dollar 603,205 - 1,828,278 ( 63,504)

December 31, 2014 Fair Unrealized Average Value at Gain/(loss) Interest Currency Year End For the Year Rate

LBP’000 LBP’000 % Foreign bonds - quoted: U.S. Dollar 444,069 13,061 6.53 Euro 2 - 5.15 444,071 13,061 Equity securities – quoted: Jordanian Dinar 149,765 62,789 Euro 56,550 ( 5,377) 206,315 57,412 650,386 70,473

39

The other investment securities are distributed by country of origin of issuer as follows:

December 31,

2015 2014

LBP’000 LBP’000

America 25,722 56,550

Europe 2 444,071

Asia/Middle East 107,907 149,765

Global funds 1,694,647 -

1,828,278 650,386

The movement of other investment securities during 2015 and 2014 is summarized as follows:

2015 2014

LBP’000 LBP’000

Balance at January 1 650,386 761,932

Additions - 884,760

Sales ( 472,986) ( 1,058,649)

Transfer from unit-linked investment securities 1,720,183 -

Change in fair value ( 63,504) 70,473


Balance at December 31 1,828,278 650,386

7. INSURANCE RECEIVABLES

(a) General Insurance Departments:

Insurance receivables and premiums of the general insurance department are distributed

geographically as follows: Insurance Receivables Premiums

December 31, Year Ended December 31,

2015 2014 2015 2014

LBP’000 LBP’000 LBP’000 LBP’000

Lebanon (Branches and Headquarters) 25,457,265 21,853,790 30,281,315 32,794,518

United Arab Emirates 23,571,756 19,652,982 79,614,113 71,648,693

Kingdom of Jordan 10,268,473 9,740,198 33,199,024 33,283,683

Sultanate of Oman 8,403,673 9,674,460 39,518,952 42,448,295

State of Kuwait 1,571,427 180,566 12,631,050 13,508,193

State of Qatar 5,105,760 6,234,445 14,858,170 15,582,166

Kingdom of Bahrain 2,564,648 2,282,492 9,967,754 9,312,781

Syria 468,394 489,269 4,718,744 5,929,161

77,411,396 70,108,202 224,789,122 224,507,490

Less: Provision for credit losses ( 13,841,181) ( 12,991,491)

63,570,215 57,116,711

40

Written premiums for the year 2015 include premiums to cover extended warranty on vehicles for the

amount of LBP24.5billion which were fully reinsured (LBP19.1billion for the year 2014).

The movement in the provision for credit losses consists of the following:

2015 2014

LBP’000 LBP’000


Additions 966,806 825,761

Write-offs ( 34,319) ( 562,970)



(b) Life Division:

Insurance and other receivables of the life division consist of the following:

December 31,

2015 2014

LBP’000 LBP’000

Accrued premium receivable 6,386,429 5,685,381

Loans on policies 123,062 185,845

Due from brokers and agents 133,275 13,072

6,642,766 5,884,298

8. DUE FROM REINSURERS

This caption consists of the following:

General Insurance

Departments Life Division


2015 2014 2015 2014

LBP’000 LBP’000 LBP’000 LBP’000

Reinsurers' current accounts - Outward 7,625,924 23,312,141 129,032 82,396

Reinsurers' current accounts - Inward 1,566,671 2,426,954 - -

9,192,595 25,739,095 129,032 82,396

Provision for credit losses ( 1,570,925) ( 1,570,925) - -

7,621,670 24,168,170 129,032 82,396

41

The movement of provision for credit losses of reinsurers’ current accounts during the years 2015 and

2014 was as follows:

2015 2014

LBP’000 LBP’000


Write-backs - ( 204,352)


9. INVESTMENT SECURITIES AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

(FVTOCI)


The investment securities at FVTOCI consist of the following: December 31, 2015 Cumulative Average Fair Change in Interest Currency Value Fair Value Rate LBP’000 LBP’000 % Foreign corporate bonds - quoted: U.S. Dollar 599,608 ( 3,315) 6.46 599,608 ( 3,315) Equity securities - quoted: U.S. Dollar 1,815,290 ( 1,344,564) Euro 716,438 ( 447,851) Saudi Riyal 31,167,864 ( 9,383,003) Swiss Franc 162,136 ( 84,329) Jordanian Dinar 22,509,601 ( 218,939) Omani Riyal 11,913 ( 3,272) 56,383,242 ( 11,481,958) Equity securities - unquoted: U.S. Dollar 3,239,636 916,860 Lebanese Pound 7,050,226 5,701,981 Jordanian Dinar 132,464 - Tunisian Dinar 55,200 46,762 10,477,526 6,665,603 Funds – unquoted: Euro 464,352 ( 98,924) 464,352 ( 98,924) 67,924,728 ( 4,918,594)

42

December 31, 2014 Cumulative Average Fair Change in Interest Currency Value Fair Value Rate LBP’000 LBP’000 % Foreign corporate bonds - unquoted: U.S. Dollar 150,750 - 10.00 150,750 - Equity securities - quoted: U.S. Dollar 2,545,734 ( 1,151,329) Euro 425,783 ( 251,546) Saudi Riyal 37,690,877 12,576,810 Swiss Franc 162,891 ( 66,357) Jordanian Dinar 22,838,542 65,708 Omani Riyal 13,181 ( 2,004) 63,677,008 11,171,282 Equity securities - unquoted: U.S. Dollar 3,386,731 1,063,955 Lebanese Pound 6,539,955 5,191,711 Jordanian Dinar 132,464 - Tunisian Dinar 58,409 49,972 10,117,559 6,305,638 Funds – unquoted: Euro 517,172 ( 46,104) 517,172 ( 46,104) 74,462,489 17,430,816 Accrued interest receivable 1,717 - 74,464,206 17,430,816

The investment securities at FVTOCI are distributed by country of origin of issuer as of December 31,


December 31,

2015 2014

LBP’000 LBP’000

America 195,799 283,487

Europe 1,385,929 1,151,769

Africa 55,200 58,409

Asia/Middle East 66,287,800 72,968,824

67,924,728 74,462,489

43

The movement of investment securities at FVTOCI during 2015 and 2014 is summarized as follows:

2015 2014

LBP’000 LBP’000


Additions 16,041,864 92,729

Sales ( 150,750) ( 5,241,912)

Transfer from life division - 445,424

Change in fair value ( 22,373,813) ( 21,012,161)



(b) Life Division:

December 31, 2015

Cumulative

Fair Change in

Currency Value Fair Value

LBP’000 LBP’000

Equity securities - quoted:

U.S. Dollar 83,666 8,290

Jordanian Dinar 294,553 ( 10,878)

378,219 ( 2,588)

Equity securities - unquoted:

Lebanese Pound 1,527,164 1,165,623

U.S. Dollar 452,250 -

1,979,414 1,165,623

2,357,633 1,163,035

December 31, 2014

Cumulative

Fair Change in

Currency Value Fair Value

LBP’000 LBP’000

Equity securities - quoted:

U.S. Dollar 84,269 8,894

Jordanian Dinar 365,310 59,879

449,579 68,773

Equity securities - unquoted:

Lebanese Pound 1,459,395 1,097,853

U.S. Dollar 452,250 -

1,911,645 1,097,853

2,361,224 1,166,626

44

The investment securities at FVTOCI are distributed by country of origin of issuer as of December 31,


December 31,

2015 2014

LBP’000 LBP’000

Asia/Middle East 2,357,633 2,361,224

2,357,633 2,361,224

The movement of investment securities at FVTOCI during 2015 and 2014 is summarized as follows:

2015 2014

LBP’000 LBP’000


Sales - ( 151,104)

Transfer to general insurance departments - ( 445,424)

Change in fair value ( 3,591) 64,187


10. INVESTMENT SECURITIES AT AMORTIZED COST


December 31, 2015 Average Amortized Fair Interest Currency Cost Value Rate LBP’000 LBP’000 % Lebanese corporate bonds - unquoted: U.S. Dollar 301,500 301,500 6.5 301,500 301,500 Lebanese government bonds - unquoted: U.S. Dollar 899,736 883,436 6.06 899,736 883,436 Foreign corporate bonds - quoted: U.S. Dollar 7,415,979 7,285,423 6.30 Euro 1,208,174 1,197,503 5.25 Jordanian Dinar 711,224 711,224 9.87 Turkish Lira 93,299 87,234 6.00 Australian Dollar 220,065 224,013 7.50 9,648,741 9,505,397 10,849,977 10,690,333 Accrued interest receivable 157,823 157,823 11,007,800 10,848,156

45

December 31, 2014 Average Amortized Fair Interest Currency Cost Value Rate LBP’000 LBP’000 % Lebanese corporate bonds - unquoted U.S. Dollar 152,449 152,449 7.00 152,449 152,449 Lebanese government bonds - unquoted U.S. Dollar 746,784 753,750 6.00 746,784 753,750 Foreign corporate bonds - quoted U.S. Dollar 7,224,961 7,104,427 6.28 Euro 1,345,195 1,471,403 5.25 Jordanian Dinar 802,652 802,652 10.00 Turkish Lira 117,187 110,614 6.00 Australian Dollar 246,321 213,356 7.50 9,736,316 9,702,452 10,635,549 10,608,651 Accrued interest receivable 161,744 161,744 10,797,293 10,770,395

The investment securities at amortized cost are segregated over remaining period to maturity as

follows:

December 31, 2015 December 31, 2014

Average Average

Amortized Interest Amortized Interest

Remaining period to maturity Cost Rate Cost Rate

LBP’000 % LBP’000 %

Up to 1 year 1,061,770 6.51 671,549 7.16

1 to 3 years 2,036,792 7.39 2,458,866 6.86

3 to 5 years 3,092,448 6.33 1,697,244 7.46

Beyond 5 years 4,658,967 5.94 5,807,890 5.89

10,849,977 10,635,549

The investment securities at amortized cost are distributed by country of origin of issuer as follows:

December 31,

2015 2014

LBP’000 LBP’000

United States of America 561,196 603,935

Europe 3,657,216 4,066,995

Africa 466,274 485,157

Asia/Middle East 5,015,958 4,311,140

Australia 394,103 413,050

South America 755,230 755,272

10,849,977 10,635,549

46

The movement of investment securities at amortized cost during 2015 and 2014 is summarized as

follows:

2015 2014

LBP’000 LBP’000


Additions 1,238,878 882,798

Redemptions ( 834,129) ( 2,069,358)

Amortization of premiums and discounts ( 2,823) ( 4,187)



(b) Life Division: December 31, 2015 Average Amortized Fair Interest Currency Cost Value Rate LBP’000 LBP’000 % Lebanese government bonds - unquoted U.S. Dollar 414,888 415,694 6.64 Lebanese corporate bonds - unquoted U.S. Dollar 753,615 752,243 6.15 1,168,503 1,167,937 Foreign corporate bonds - quoted U.S. Dollar 9,055,955 8,870,723 5.93 Euro 991,669 1,036,996 5.63 10,047,624 9,907,719 11,216,127 11,075,656 Accrued interest receivable 175,790 175,790 11,391,917 11,251,446 December 31, 2014 Average Amortized Fair Interest Currency Cost Value Rate LBP’000 LBP’000 % Lebanese government bonds - unquoted U.S. Dollar 414,998 419,462 6.64 Lebanese corporate bonds - unquoted U.S. Dollar 753,527 755,258 6.15 1,168,525 1,174,720 Foreign corporate bonds - quoted U.S. Dollar 7,808,741 8,174,222 6.05 Jordanian Dinar 170,098 170,098 6.75 Euro 1,104,955 1,170,702 6.54 9,083,794 9,515,022 10,252,319 10,689,742 Accrued interest receivable 181,586 181,586 10,433,905 10,871,328

47

The investment securities at amortized cost are distributed by country of origin of issuer as of

December 31, 2015 and 2014 as follows:

December 31,

2015 2014

LBP’000 LBP’000

United States of America 1,283,252 1,359,035

Europe 3,852,970 3,384,310

Asia/Middle East 4,683,717 4,554,254

South America 1,396,188 803,734

Africa - 150,986

11,216,127 10,252,319

The remaining period to maturity of the investment securities at amortized cost is as follows:

Amortized Cost Average Interest Rate


2015 2014 2015 2014

LBP’000 LBP’000 LBP’000 LBP’000

Up to 1 year 864,811 - 7.85 -

1 to 3 years 833,945 1,384,303 6.54 7.05

3 to 5 years 5,475,812 4,243,000 5.81 6.00

More than 5 years 4,041,559 4,625,016 7.85 6.02

11,216,127 10,252,319

The movement of investment securities at amortized cost during 2015 and 2014 is summarized as

follows:

2015 2014

LBP’000 LBP’000


Additions 2,096,907 2,065,386

Redemptions ( 1,018,902) ( 2,000,599)

Amortization of premiums and discounts ( 1,353) ( 14,727)



48

11. DEFERRED ACQUISITION COSTS

The movement of deferred acquisition costs during 2015 and 2014 was as follows:

2015 2014

LBP’000 LBP’000


Additions 25,702,146 27,352,853

Amortization ( 27,060,408) ( 29,578,512)


12. OTHER ASSETS


December 31,

2015 2014

LBP’000 LBP’000

Balances outstanding between Head Office and branches - 1,182,363

Receivable from employees 482,744 596,731

Refundable deposits 30,282 30,296

Prepayments 1,089,833 1,065,033

Receivables from tenants 322,125 438,961

Sundry debtors 1,337,241 1,421,981

3,262,225 4,735,365

Provision for doubtful receivables from tenants ( 200,675) ( 200,675)

3,061,550 4,534,690

The movement of provision for doubtful receivables from tenants during 2015 and 2014 was as

follows:

2015 2014

LBP’000 LBP’000

Balance at January 1 200,675 200,675

Balance at December 31 200,675 200,675

49

13. PROPERTY AND EQUIPMENT


General

Insurance Departments Life Division


2015 2014 2015 2014

LBP’000 LBP’000 LBP’000 LBP’000

Property:

Land - Ain Al-Mreisseh 2,792,352 2,792,352 - -

Building – Ain Al-Mreisseh 3,345,957 3,345,957 - -

Less: Accumulated depreciation ( 1,621,940) ( 1,538,291) - -

Net building after depreciation 1,724,017 1,807,666 - -

Total land and building - Ain Al-Mreisseh 4,516,369 4,600,018 - -

Subsidiary branch offices – Syria 660,932 3,768,412 - -

Subsidiary office land and building – Jordan 4,940,378 4,939,113 - -

Tripoli office (at cost) 273,804 273,804 - -

Chtoura office (at cost) 87,441 87,441 - -

Saida office (at cost) 248,285 248,285 - -

6,210,840 9,317,055 - -

Less: Accumulated depreciation ( 511,577) ( 517,355) - -

Net office and subsidiary building 5,699,263 8,799,700 - -

Total Property 10,215,632 13,399,718 - -

Furniture and Equipment (at cost) 11,031,475 10,955,047 1,367,409 1,348,255

Less: Accumulated depreciation ( 7,991,478) ( 7,707,811) ( 875,338) ( 788,277)

Net Furniture and Equipment 3,039,997 3,247,236 492,071 559,978

Construction in progress:

Subsidiary branch offices – Syria 2,006,145 3,471,773 - -

Total net book value of property and equipment 15,261,774 20,118,727 492,071 559,978

50

The movement of property and equipment during 2015 and 2014 was as follows:

Furniture Construction

and in

Land Buildings Equipment Progress Total

LBP’000 LBP’000 LBP’000 LBP’000 LBP’000

Cost:

Balance at January 1, 2014 3,464,551 12,862,819 11,427,619 4,429,081 32,184,070

Additions - 154,995 395,088 - 550,083

Disposals - - ( 395,192) - ( 395,192)

Transfer to intangible assets – Note 14 - - ( 335,544) - ( 335,544)

Effect of foreign currency fluctuations - ( 1,027,001) ( 136,924) ( 957,308) ( 2,121,233)

Balance at December 31, 2014 3,464,551 11,990,813 10,955,047 3,471,773 29,882,184

Additions - 1,265 671,204 - 672,469

Disposals - - ( 316,125) - ( 316,125)

Transfer to investment properties – Note 15 - ( 2,258,226) - - ( 2,258,226)

Effect of foreign currency fluctuations - ( 849,254) ( 278,651) ( 1,465,628) ( 2,593,533)

Balance at December 31, 2015 3,464,551 8,884,598 11,031,475 2,006,145 25,386,769

Accumulated Depreciation:

Balance at January 1, 2014 - ( 1,791,368) ( 7,434,829) - ( 9,226,197)

Charge for the year - ( 306,925) ( 812,724) - ( 1,119,649)

Eliminated upon disposals - - 358,998 - 358,998

Transfer to intangible assets – Note 14 - - 49,627 - 49,627

Effect of foreign currency fluctuations - 42,647 131,117 - 173,764

Balance at December 31, 2014 - ( 2,055,646) ( 7,707,811) - ( 9,763,457)

Charge for the year - ( 265,393) ( 805,147) - ( 1,070,540)

Eliminated upon disposals - - 311,145 - 311,145

Transfer to investment properties – Note 15 - 120,724 - - 120,724

Effect of foreign currency fluctuations - 66,798 210,335 - 277,133

Balance at December 31, 2015 - ( 2,133,517) ( 7,991,478) - ( 10,124,995)

Net Book Value:

At December 31, 2015 3,464,551 6,751,081 3,039,997 2,006,145 15,261,774

At December 31, 2014 3,464,551 9,935,167 3,247,236 3,471,773 20,118,727

The depreciation expense of the building in Ain-Al Mreisseh amounting to LBP84million for the years

ended December 31, 2015 and 2014 respectively is booked under “net loss from building” in the

consolidated statement of profit or loss.

During 1994, the carrying amount of Ain Al-Mreisseh property was adjusted on the basis of net

realizable value and the new value was accounted for in the light of the requirements of the Law Nº.

282 of December 30, 1993 (See Note 28 below).

Further to the above, the Group holds title of ownership in a property in Libya, registered in the Libyan

Agency of Property’s Registry in the name of Arabia Insurance Company S.A.L. This property was

nationalized in 1970. In February 1975, the Libyan Revolution Command Council appointed a

committee for the purpose of appraising the nationalized land in order to determine the value of the

compensation. However, the value of such compensation has not yet been determined.

The construction in progress represents the building under construction for the subsidiary in Syria.

51

14. INTANGIBLE ASSETS

Computer Software

General

Insurance Life

Departments Division

LBP’000 LBP’000

Cost:

Balance at January 1, 2014 1,686,879 424,510

Additions 235,170 64,485

Transfer from property and equipment – Note 13 335,544 -

Effect of foreign currency fluctuations ( 197,470) -

Balance at December 31, 2014 2,060,123 488,995

Additions 57,884 35,201

Effect of foreign currency fluctuations ( 70,241) -

Balance at December 31, 2015 2,047,766 524,196

Accumulated Amortization:

Balance at January 1, 2014 ( 1,214,661) ( 224,098)

Amortization expense ( 230,021) ( 35,718)

Transfer from property and equipment – Note 13 ( 49,627) -

Effect of foreign currency fluctuations 195,479 -

Balance at December 31, 2014 ( 1,298,830) ( 259,816)

Amortization expense ( 233,842) ( 41,896)

Effect of foreign currency fluctuations 63,363 -

Balance at December 31, 2015 ( 1,469,309) ( 301,712)

Net Book Value:

Balance at December 31, 2015 578,457 222,484

Balance at December 31, 2014 761,293 229,179

52

15. INVESTMENT PROPERTIES

Investment properties represent the available area of the new headquarters of the Jordanian and Syrian

subsidiaries that are not used by the Group and consist of the following:

Land Buildings Total

LBP’000 LBP’000 LBP’000

Cost:

Balance at January 1, 2014 690,459 4,531,981 5,222,440

Adjustments - ( 10,493) ( 10,493)

Balance at December 31, 2014 690,459 4,521,488 5,211,947

Additions - 797 797

Transfer from property and equipment – Note 13 - 2,258,226 2,258,226

Effect of foreign currency fluctuations - ( 741,602) ( 741,602)

Balance at December 31, 2015 690,459 6,038,909 6,729,368

Accumulated depreciation:

Balance at January 1, 2014 - ( 18,594) ( 18,594)

Charge for the year - ( 94,594) ( 94,594)

Balance at December 31, 2014 - ( 113,188) ( 113,188)

Charge for the year - ( 113,285) ( 113,285)

Transfer from property and equipment – Note 13 - ( 120,724) ( 120,724)

Effect of foreign currency fluctuations - 39,646 39,646

Balance at December 31, 2015 - ( 307,551) ( 307,551)

Net Book Value:

At December 31, 2015 690,459 5,731,358 6,421,817

At December 31, 2014 690,459 4,408,300 5,098,759

The fair value of the investment properties approximates their carrying value as of December 31, 2015

and 2014 on the basis of a recent valuation carried out by independent real estate appraisers. The fair

value was determined based on the market comparable approach that reflects recent transaction prices

for similar properties, which is categorized into Level 2 of the fair value hierarchy.

16. DUE TO LIFE DIVISION

The Group keeps separate books of accounts for its life division, independent from the books of the

general insurance departments and the accounting relationship between the two divisions is

represented by an inter-company current account, the balance of which as of December 31, 2015

amounted to LBP15.2billion in favor of the life division (LBP9.9billion as of December 31, 2014).

53

17. DUE TO BANKS

(a) General Departments:

December 31,

2015 2014

LBP’000 LBP’000

Bank loans 6,977,137 4,813,848

Bank overdrafts 2,264,610 -

9,241,747 4,813,848

Bank loans consist of medium-term loans, denominated in U.S. Dollar, carry interest at the average

rate of 1.90% per annum for the year 2015 (1.43% per annum for the year 2014) and mature in the year

2017.

Bank overdrafts consist of short-term facilities, denominated in U.S. Dollar, and carry interest at the

average rate of 0.82% per annum for the year 2015.

(b) Life Division:

Due to banks amounting to LBP1.7billion (LBP1.5billion as of December 31, 2014) represent loans

denominated in U.S. Dollar, subject to an annual average interest rate of 1.46% (1.46% for the year

2014), and mature in the year 2016.

18. INSURANCE PAYABLES


December 31,

2015 2014

LBP’000 LBP’000

Due to sponsors, brokers and agencies 14,549,575 14,457,592

Due to garages 8,410,924 9,600,423

Due to hospitals 888,916 1,707,846

Other insurance payables 574,288 547,702

24,423,703 26,313,563

54

19. INCOME TAX

Income tax payable as of December 31, 2015 and 2014 consists of the following:

December 31,

2015 2014

LBP’000 LBP’000

Insurance income tax – Subsidiaries and Branches 1,377,829 1,816,208

Insurance income tax – Lebanese operations 321,103 363,602

Corporate income tax - Lebanese Subsidiary 93,781 86,224

Tax on holding companies 10,000 10,000

1,802,713 2,276,034

During 2015, the tax returns for Lebanese operations for the years 2010 to 2013 were subject to

examination by the tax authorities which resulted in preliminary additional tax claims of

LBP280million excluding fines and penalties that were already accrued for in prior years.

The tax returns for Lebanese operations since year 2014 remain subject to examination and final

assessment by the tax authorities.

The Group’s accounts and tax returns in the other locations where the Group operates remain subject

to examination and acceptance by the related tax authorities where applicable. The extent of the tax

contingency depends on the outcome of such tax examination. Management does not expect additional

material tax claims as a result of this examination.

Deferred tax assets amounting to LBP940million and LBP925million as of December 31, 2015 and

2014, respectively, related to the subsidiary in Jordan are recognized for unused tax losses and on

temporary differences between the carrying amounts of assets and liabilities in the financial statements

and the corresponding tax bases used in the computation of taxable profit. Change in deferred tax assets

is reflected under income tax expense in the consolidated statement of profit or loss.

Deferred tax liabilities amounting to LBP1.62billion and LBP1.64billion as of December 31, 2015 and

2014, respectively, are generally recognized for all taxable temporary differences and are mainly

attributable to the change in fair value of investment securities at FVTOCI.

55

20. ACCRUED EXPENSES AND OTHER LIABILITIES


General Insurance



2015 2014 2015 2014

LBP’000 LBP’000 LBP’000 LBP’000

Accrued expenses 790,070 724,569 44,157 49,254

Accrued commission payable 122,624 133,113 1,683,408 1,078,828

Premiums received in advance - - 5,189,462 4,552,125

Balances outstanding between Head Office

and branches 143,731 - - -

Dividends payable 605,938 809,969 - -

Municipality fees and other taxes payable 2,608,437 1,953,859 54,978 61,975

Social Security National Fund contribution 254,999 233,337 - -

Derivative liability at FVTPL 628,715 648,329 - -

Other credit balances 3,687,615 4,127,999 28,924 39,117

8,842,129 8,631,175 7,000,929 5,781,299

21. INSURANCE CONTRACT LIABILITIES – GENERAL INSURANCE DEPARTMENTS

The caption consists of the following:

Gross Reinsurers’ Share Net

December 31, December 31, December 31,

2015 2014 2015 2014 2015 2014

LBP’000 LBP’000 LBP’000 LBP’000 LBP’000 LBP’000

Unearned premium reserve 93,411,247 95,839,280 (17,245,132) ( 15,584,684) 76,166,115 80,254,596

Provision for outstanding

claims 131,312,938 106,435,788 (59,692,096) ( 29,987,725) 71,620,842 76,448,063

Claims incurred but not

reported (IBNR) 16,412,396 12,259,348 ( 3,323,054) ( 1,473,053) 13,089,342 10,786,295

Claims incurred but not

enough reserved (IBNER) 1,319,681 - - - 1,319,681 -

Loss adjustment expense

reserve (LAE) 1,274,671 - - - 1,274,671 -

Premium deficiency reserve 3,557,984 - - - 3,557,984 -

247,288,917 214,534,416 (80,260,282) ( 47,045,462) 167,028,635 167,488,954

56

21(a). Unearned Premium Reserve (UPR)



2015 2014 2015 2014 2015 2014


Marine 2,001,631 2,350,915 ( 1,670,772) ( 1,486,251) 330,859 864,664

Motor 64,843,648 65,039,202 ( 662,675) ( 641,622) 64,180,973 64,397,580

Property 5,889,241 5,478,139 ( 5,211,154) ( 4,188,205) 678,087 1,289,934

General accidents 10,158,365 10,368,797 ( 9,001,886) ( 8,380,661) 1,156,479 1,988,136

Workmen's compensation 2,021,639 2,122,056 - ( 1,499) 2,021,639 2,120,557

Medical 8,496,723 10,480,171 ( 698,645) ( 886,446) 7,798,078 9,593,725

93,411,247 95,839,280 ( 17,245,132) ( 15,584,684) 76,166,115 80,254,596

21(b). Provision for outstanding claims (including IBNR, IBNER and LAE)



2015 2014 2015 2014 2015 2014


Marine 2,653,660 3,025,639 ( 1,788,860) ( 1,617,736) 864,800 1,407,903

Motor 74,104,844 73,326,154 ( 4,872,788) ( 3,240,226) 69,232,056 70,085,928

Property 11,814,005 8,717,363 (10,915,507) ( 7,771,085) 898,498 946,278

General accidents 49,727,443 22,591,339 (44,465,687) ( 17,514,416) 5,261,756 5,076,923

Workmen’s compensation 5,555,670 4,896,092 ( 697,771) ( 755,630) 4,857,899 4,140,462

Medical 6,464,064 6,138,549 ( 274,537) ( 561,685) 6,189,527 5,576,864

150,319,686 118,695,136 (63,015,150) ( 31,460,778) 87,304,536 87,234,358

21(c). Premium Deficiency Reserve (PDR)



2015 2014 2015 2014 2015 2014


Motor 3,147,996 - - - 3,147,996 -

Workmen's compensation 409,988 - - - 409,988 -

3,557,984 - - - 3,557,984 -

22. LIFE INSURANCE CONTRACT LIABILITIES



2015 2014 2015 2014 2015 2014


Mathematical reserve 62,311,189 57,880,647 - - 62,311,189 57,880,647

Provision for unexpired risks 6,138,457 5,700,132 ( 547,076) ( 599,867) 5,591,381 5,100,265

Provision for outstanding claims 4,749,297 3,968,552 ( 2,797,106) ( 2,029,620) 1,952,191 1,938,932

Claims under settlement reserve 478,139 384,666 - - 478,139 384,666

73,677,082 67,933,997 ( 3,344,182) ( 2,629,487) 70,332,900 65,304,510

57

The movement in the gross life insurance contract liabilities is summarized below:

2015 2014

LBP’000 LBP’000


Allocation to saving components 10,401,220 8,600,311

Change in value of insurance liabilities ( 1,079,155) 2,148,681

Change in provision for unexpired risks 438,325 ( 50,178)

Change in provision for outstanding claims 780,745 ( 241,087)

Liabilities paid on surrenders ( 4,785,062) ( 4,182,560)

Liabilities paid on maturities ( 40,352) ( 321,361)

Distribution of profits on matured and surrendered

policies to policyholders ( 39,722) ( 57,614)

Effect of foreign currency fluctuations 67,086 ( 66,597)


The life insurance contract liabilities include LBP39.6billion as of December 31, 2015

(LBP38.7billion as of December 31, 2014) relating to unit-linked contracts where the Group matches

the liabilities to policyholders with the related assets in a way to eliminate price, currency, credit, or

interest risk for these contracts. The change in insurance liabilities during the year 2015 includes a

negative change in the unit prices of LBP1.47million (A positive change of LBP367million for the

year 2014) that relates to unit-linked products. (See note 6)

23. PROVISION FOR EMPLOYEES’ END-OF-SERVICE INDEMNITY

The movement in provision for employees’ end-of-service indemnity during 2015 and 2014 was as

follows:

General Insurance


2015 2014 2015 2014

LBP’000 LBP’000 LBP’000 LBP’000

Balance at January 1 6,035,110 5,820,305 548,472 439,225

Additions 1,026,391 766,523 92,167 129,901

Settlements ( 770,261) ( 551,718) ( 50,677) ( 20,654)

Balance at December 31 6,291,240 6,035,110 589,962 548,472

58

24. PROVISION FOR CONTINGENCIES

The movement in provision for contingencies during 2015 and 2014 was as follows:

2015 2014

LBP’000 LBP’000


Settlements - ( 852,732)


This provision is intended to cover loss contingencies that may occur in view of the circumstances,

which prevail in the areas where the Group operates and includes amounts to cover the likelihood of

additional levies due to uncertainties.

25. RELATED PARTY BALANCES AND TRANSACTIONS

Due from related company amounting to LBP841million as of December 31, 2015 (LBP449million as

of December 31, 2014) represents a non-interest bearing receivable current account due from Arabia

Insurance Cooperative Company (AICC), an insurance company established in the Kingdom of Saudi

Arabia, in which the Group owns 19.2% of the voting power.

The Group had balances and transactions with Arab Bank PLC, the major shareholder which owns

38.23% of the Parent Company’s shares, and with its subsidiaries, in the form of investment securities

and bank deposits.

The following balances with Arab Bank Group were outstanding as at December 31, 2015 and 2014:

December 31,

2015 2014

LBP’000 LBP’000

Bank deposits 18,670,727 20,214,433

Investment securities 7,540,903 7,447,183

26,211,630 27,661,616

59

26. SHARE CAPITAL

The share capital amounting to LBP51billion as of December 31, 2015 and 2014, is composed of

20,400,000 nominal ordinary shares of par value LBP2,500 each, fully paid as follows:

Number of shares Balance


2015 2014 2015 2014

LBP’000 LBP’000

Issued shares 20,400,000 20,400,000 51,000,000 51,000,000

Less: treasury shares ( 1,099,078) ( 1,289,246) (4,453,752) ( 6,381,646)

Outstanding shares 19,300,922 19,110,754 46,546,248 44,618,354

The movement of the share capital during 2015 and 2014 was as follows:

Number of Share Treasury Shares Capital Shares LBP’000 LBP’000 Balance as at January 1, 2014 19,126,299 51,000,000 ( 6,240,559) Buy-back of treasury shares ( 104,060) - ( 941,705) Sale of treasury shares 88,515 - 800,618 Balance as at December 31, 2014 19,110,754 51,000,000 ( 6,381,646) Buy-back of treasury shares ( 111,240) - ( 1,007,662) Sale of treasury shares 242,054 - 2,398,699 Distribution of treasury shares - Note 30 59,354 - 536,857 Balance as at December 31, 2015 19,300,922 51,000,000 ( 4,453,752)

27. LEGAL RESERVE

December 31,

2015 2014

LBP’000 LBP’000

Legal reserve – Parent Company 17,000,000 17,000,000

Legal reserve - Subsidiaries 6,905,628 6,884,634

23,905,628 23,884,634

In accordance with article 165 of the Lebanese Code of Commerce, Lebanese Companies are required to

transfer ten percent of the annual net profit, for the years that show profit, to a reserve account until the

reserve amount equals one third of the Parent Company’s capital. This reserve is not available for

distribution.

60

28. ASSET REVALUATION RESERVE

During 1994, the real estate and the investments were adjusted on the basis of the net realizable value

and the new values were accounted for in accordance with the requirements of the Law Nº. 282 of

December 30, 1993. Part of this reserve was distributed to shareholders in prior years and the

remaining balance has been reflected in other comprehensive income under equity.

29. CUMULATIVE CHANGE IN FAIR VALUE OF INVESTMENT SECURITIES AT FVOCI

The cumulative change in fair value of investment securities at FVTOCI consists of the following:

General Insurance Departments Life Division December 31, December 31, 2015 2014 2015 2014 LBP’000 LBP’000 LBP’000 LBP’000 Debt and equity securities ( 4,819,670) 17,476,920 1,163,035 1,166,626 Funds ( 98,924) ( 46,104) - - ( 4,918,594) 17,430,816 1,163,035 1,166,626 Deferred tax liabilities ( 901,501) ( 821,302) - - ( 5,820,095) 16,609,514 1,163,035 1,166,626 Non-controlling interests - Note 31 ( 510,318) ( 557,794) - - ( 6,330,413) 16,051,720 1,163,035 1,166,626

The movement of the cumulative change in fair value of investment securities at FVTOCI during 2015

and 2014 is summarized as follows:


2015 2014

LBP’000 LBP’000


Net change in fair value for the year ( 22,353,684) ( 21,047,865)

Allocation to retained earnings upon disposal of investment securities - ( 262,188)

Transfer from Life division - 444,014

Change in deferred tax ( 28,449) 3,799

Balance at December 31 ( 6,330,413) 16,051,720

61

(b) Life Division:

2015 2014

LBP’000 LBP’000


Transfer to general departments - ( 444,014)

Net unrealized (loss)/gain for the year ( 3,591) 77,028

Allocation to retained earnings upon disposal of investment securities - ( 150,996)


30. DIVIDEND AND REMUNERATION DISTRIBUTION

No dividends were distributed for the years 2015 and 2014.

In its meeting held on May 22, 2015, the General Assembly of Shareholders approved the distribution

of remunerations to the Board of Directors, Investment Committee, and Audit Committee of

LBP537million from treasury shares (Note 26).

In its meeting held on May 23, 2014, the General Assembly of Shareholders approved the distribution

of remunerations to the Board of Directors, Investment Committee, and Audit Committee of

LBP332million from retained earnings.

31. NON-CONTROLLING INTERESTS

Profit/(Loss) Allocated

Proportion of to Non-Controlling Accumulated

Non-Controlling Interests Interests Non-Controlling Interests


Name of Subsidiary 2015 2014 2015 2014 2015 2014

% % LBP’000 LBP’000 LBP’000 LBP’000

Arabia Insurance Company – Syria 49.94 49.94 250,797 89,089 3,189,555 5,228,256

Arabia Insurance Company - Jordan 48.56 48.56 ( 89,661) 660,156 8,995,873 9,725,033

Al-Mashriq Financial

Investments Co. S.A.L. 10.93 10.95 77,552 88,256 2,738,594 2,651,014

238,688 837,501 14,924,022 17,604,303

62

General Insurance



2015 2014 2015 2014

LBP’000 LBP’000 LBP’000 LBP’000

Capital 25,525,411 25,525,657 - -

Fair value of Arabia Insurance Company

shares owned by non-controlling shareholders ( 850,460) ( 851,955) - -

Cumulative change in fair value of Arabia

Company's shares owned by non-controlling

shareholders 707,603 708,847 - -

Cumulative change in fair value of financial

assets at FVTOCI 653,175 700,902 - -

Foreign currency translation reserve ( 16,884,321) ( 14,594,823) - -

Reserves and retained earnings 5,533,926 5,278,174 713,222 612,612

Profit for the year 238,688 837,501 213,433 100,610

14,924,022 17,604,303 926,655 713,222

Summarized financial information in respect of the Group’s subsidiaries that have material non-

controlling interests is set out below:

The summarized financial information below represents amounts before intragroup eliminations.

Arabia Insurance Company – Syria:

December 31,

2015 2014

LBP’000 LBP’000

Total assets 18,170,343 20,337,008


Total equity attributable to owners of the Parent Company 3,197,605 5,241,453

Non-controlling interests 3,189,555 5,228,256

Year Ended

December 31,

2015 2014

LBP’000 LBP’000

Net insurance income 382,862 63,161

Net investment income 828,205 882,806

Other expenses, net ( 708,840) ( 767,565)

Profit for the year 502,227 178,402

Attributable to owners of the Parent Company 251,430 89,313

Attributable to non-controlling interests 250,797 89,089

502,227 178,402

63

Arabia Insurance Company – Jordan (General Insurance Departments):

December 31,

2015 2014

LBP’000 LBP’000

Total assets 64,193,199 61,357,448


Total equity attributable to owners of the Parent Company 9,529,401 10,301,806

Non-controlling interests 8,995,873 9,725,033

Year Ended

December 31,

2015 2014

LBP’000 LBP’000

Net insurance income 246,250 1,514,018

Net investment income 661,780 1,417,536

Other expenses, net ( 1,092,670) ( 1,572,089)

(Loss)/profit for the year ( 184,640) 1,359,465

Attributable to owners of the Parent Company ( 94,979) 699,309

Attributable to non-controlling interests ( 89,661) 660,156

( 184,640) 1,359,465

64

32. CONSOLIDATED STATEMENT OF INCOME AND EXPENSES OF THE GENERAL INSURANCE DEPARTMENTS

Year Ended December 31, 2015

General Workmen’s Reinsurance

Marine Motor Property Accidents Compensation Medical Inwards Total

LBP’000 LBP’000 LBP’000 LBP’000 LBP’000 LBP’000 LBP’000 LBP’000

Income:

Premiums 7,253,130 152,031,470 16,266,415 21,775,872 4,812,997 22,500,887 148,351 224,789,122

Reinsurers’ share ( 6,178,754) ( 29,575,474) ( 14,436,014) ( 19,010,766) ( 82,014) ( 1,761,460) - ( 71,044,482)

Group's share 1,074,376 122,455,996 1,830,401 2,765,106 4,730,983 20,739,427 148,351 153,744,640

Policy fees 181,892 3,353,384 158,236 117,890 45,678 139,781 - 3,996,861

Other fees 693 2,352,510 3,718 7,454 5,536 814,212 - 3,184,123

Total fees 182,585 5,705,894 161,954 125,344 51,214 953,993 - 7,180,984

UPR at beginning of year 2,350,915 65,039,202 5,478,139 10,368,797 2,122,056 10,480,171 - 95,839,280

Reinsurers’ share ( 1,486,251) ( 641,622) ( 4,188,205) ( 8,380,661) ( 1,499) ( 886,446) - ( 15,584,684)

Effect of foreign currency fluctuations ( 10,739) ( 386,453) ( 58,753) ( 4,048) - ( 212,346) - ( 672,339)

Group's share 853,925 64,011,127 1,231,181 1,984,088 2,120,557 9,381,379 - 79,582,257

UPR at end of year ( 2,001,631) ( 64,843,648) ( 5,889,241) ( 10,158,365) ( 2,021,639) ( 8,496,723) - ( 93,411,247)

Reinsurers’ share 1,670,772 662,675 5,211,154 9,001,886 - 698,645 - 17,245,132

Group's share ( 330,859) ( 64,180,973) ( 678,087) ( 1,156,479) ( 2,021,639) ( 7,798,078) - ( 76,166,115)

Net change in UPR 523,066 ( 169,846) 553,094 827,609 98,918 1,583,301 - 3,416,142

Change in deferred commissions from reinsurers ( 44,518) - ( 189,497) ( 70,479) - - - ( 304,494)

Commissions from reinsurers 2,214,718 24,933 3,847,037 3,676,180 1,479 234,738 - 9,999,085

Profits/(loss) from treaties, interest and miscellaneous income 518,366 - 696,526 245,372 - 292,084 ( 422,893) 1,329,455

Total income from reinsurers 2,688,566 24,933 4,354,066 3,851,073 1,479 526,822 ( 422,893) 11,024,046

Total income 4,468,593 128,016,977 6,899,515 7,569,132 4,882,594 23,803,543 ( 274,542) 175,365,812

65

Year Ended December 31, 2015 (Continued)




Expenses:

Outstanding claims, IBNR, IBNER and LAE at beginning of year ( 3,025,639) ( 73,326,154) ( 8,717,363) ( 22,591,339) ( 4,896,092) ( 6,138,549) - ( 118,695,136)

Reinsurers’ share 1,617,736 3,240,226 7,771,085 17,514,416 755,630 561,685 - 31,460,778

Effect of foreign currency fluctuations 4,019 1,877,312 19,375 20,742 ( 2) 84,552 - 2,005,998

Group's share ( 1,403,884) ( 68,208,616) ( 926,903) ( 5,056,181) ( 4,140,464) ( 5,492,312) - ( 85,228,360)

Outstanding claims, IBNR, IBNER and LAE at end of year 2,653,660 74,104,844 11,814,005 49,727,443 5,555,670 6,464,064 - 150,319,686

Reinsurers’ share ( 1,788,860) ( 4,872,788) ( 10,915,507) ( 44,465,687) ( 697,771) ( 274,537) - ( 63,015,150)

Group's share 864,800 69,232,056 898,498 5,261,756 4,857,899 6,189,527 - 87,304,536

Net change in outstanding claims, IBNR, IBNER and LAE ( 539,084) 1,023,440 ( 28,405) 205,575 717,435 697,215 - 2,076,176

PDR at beginning of year - - - - - - - -

Reinsurers’ share - - - - - - - -

Company's share - - - - - - - -

PDR at end of year - 3,147,996 - - 409,988 - - 3,557,984

Reinsurers’ share - - - - - - - -

Company's share - 3,147,996 - - 409,988 - - 3,557,984

Net change in premium deficiency reserve - 3,147,996 - - 409,988 - - 3,557,984

Claims paid net of recoveries 1,732,699 97,392,138 2,982,707 5,870,014 2,850,376 21,475,367 158,855 132,462,156

Reinsurers' share ( 908,708) ( 11,131,385) ( 2,145,914) ( 4,430,749) ( 134,558) ( 1,753,211) - ( 20,504,525)

Group's share 823,991 86,260,753 836,793 1,439,265 2,715,818 19,722,156 158,855 111,957,631

Commissions expense - note 11 851,399 18,827,697 1,746,375 1,471,938 760,090 2,020,404 24,243 25,702,146

Change in deferred acquisition costs - note 11 71,883 865,016 ( 46,553) 12,971 59,168 395,777 - 1,358,262

Other direct expenses 121,825 1,148,401 215,775 4,325 69,609 886,439 - 2,446,374

Departments’ share of general expenses - note 33 865,751 17,372,180 1,901,549 2,697,840 540,830 2,467,071 19,983 25,865,204

Total expenses 2,195,765 128,645,483 4,625,534 5,831,914 5,272,938 26,189,062 203,081 172,963,777

Net income/(loss) of insurance departments 2,272,828 ( 628,506) 2,273,981 1,737,218 ( 390,344) ( 2,385,519) ( 477,623) 2,402,035

66

Year Ended December 31, 2014




Income:

Premiums 8,816,682 146,903,356 15,666,757 23,118,805 4,799,849 24,844,488 357,553 224,507,490

Reinsurers’ share ( 5,615,213) ( 22,958,025) ( 12,857,067) ( 18,659,821) ( 55,501) ( 2,983,325) - ( 63,128,952)

Group's share 3,201,469 123,945,331 2,809,690 4,458,984 4,744,348 21,861,163 357,553 161,378,538

Policy fees 185,419 2,815,071 163,645 118,515 51,601 127,058 - 3,461,309

Other fees 1,092 2,319,494 4,195 7,060 5,642 1,096,159 - 3,433,642

Total fees 186,511 5,134,565 167,840 125,575 57,243 1,223,217 - 6,894,951

UPR at beginning of year 2,561,511 69,008,378 5,104,890 9,919,957 2,521,364 12,412,649 - 101,528,749

Reinsurers’ share ( 1,663,415) ( 1,032,589) ( 3,837,590) ( 7,658,004) - ( 2,233,039) - ( 16,424,637)

Effect of foreign currency fluctuations ( 3,966) ( 398,959) ( 244) ( 6,970) - ( 90,675) - ( 500,814)

Group's share 894,130 67,576,830 1,267,056 2,254,983 2,521,364 10,088,935 - 84,603,298

UPR at end of year ( 2,350,915) ( 65,039,202) ( 5,478,139) ( 10,368,797) ( 2,122,056) ( 10,480,171) - ( 95,839,280)

Reinsurers’ share 1,486,251 641,622 4,188,205 8,380,661 1,499 886,446 - 15,584,684

Group's share ( 864,664) ( 64,397,580) ( 1,289,934) ( 1,988,136) ( 2,120,557) ( 9,593,725) - ( 80,254,596)

Net change in UPR 29,466 3,179,250 ( 22,878) 266,847 400,807 495,210 - 4,348,702

Change in deferred commissions from reinsurers 2,997 - 27,930 ( 135,383) - - - ( 104,456)

Commissions from reinsurers 2,048,059 72,390 3,336,892 3,460,009 1,329 182,150 - 9,100,829

Profits/(loss) from treaties, interest and miscellaneous income 302,259 - 86,969 599,800 - 246,060 - 1,235,088

Total income from reinsurers 2,353,315 72,390 3,451,791 3,924,426 1,329 428,210 - 10,231,461

Total income 5,770,761 132,331,536 6,406,443 8,775,832 5,203,727 24,007,800 357,553 182,853,652

67

Year Ended December 31, 2014 (Continued)




Expenses:

Outstanding claims, IBNR, IBNER and LAE at beginning of year ( 3,288,109) ( 71,289,021) ( 15,370,604) ( 31,728,980) ( 4,133,156) ( 8,172,740) - ( 133,982,610)

Reinsurers’ share 1,912,061 1,858,485 13,537,638 26,105,169 579,745 2,535,322 - 46,528,420

Effect of foreign currency fluctuations 4,421 1,120,450 36,594 ( 339,634) ( 6) 368,398 - 1,190,223

Group's share ( 1,371,627) ( 68,310,086) ( 1,796,372) ( 5,963,445) ( 3,553,417) ( 5,269,020) - ( 86,263,967)

Outstanding claims, IBNR, IBNER and LAE at end of year 3,025,639 73,326,154 8,717,363 22,591,339 4,896,092 6,138,549 - 118,695,136

Reinsurers’ share ( 1,617,736) ( 3,240,226) ( 7,771,085) ( 17,514,416) ( 755,630) ( 561,685) - ( 31,460,778)

Group's share 1,407,903 70,085,928 946,278 5,076,923 4,140,462 5,576,864 - 87,234,358

Net change in outstanding claims, IBNR, IBNER and LAE 36,276 1,775,842 ( 850,094) ( 886,522) 587,045 307,844 - 970,391

Claims paid net of recoveries 714,569 94,725,871 7,193,955 9,982,587 3,548,861 26,618,825 292,668 143,077,336

Reinsurers' share ( 324,326) ( 5,841,455) ( 6,102,796) ( 8,190,619) ( 71,280) ( 4,644,425) - ( 25,174,901)

Group's share 390,243 88,884,416 1,091,159 1,791,968 3,477,581 21,974,400 292,668 117,902,435

Commissions paid – note 11 1,171,151 19,619,038 1,612,250 1,474,236 851,461 2,556,217 68,500 27,352,853

Change in deferred acquisition costs 5,993 1,923,049 ( 33,539) 163,746 129,130 37,280 - 2,225,659

Other direct expenses 49,766 1,574,243 171,937 23,573 55,330 946,097 - 2,820,946

Departments’ share of general expenses - note 33 1,017,330 16,484,491 1,847,558 2,841,259 524,318 2,623,225 47,679 25,385,860

Total expenses 2,670,759 130,261,079 3,839,271 5,408,260 5,624,865 28,445,063 408,847 176,658,144

Net income/(loss) of insurance departments 3,100,002 2,070,457 2,567,172 3,367,572 ( 421,138) ( 4,437,263) ( 51,294) 6,195,508

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33. GENERAL AND ADMINISTRATIVE EXPENSES

a) General Insurance Departments:

Total general and administrative expenses of general insurance departments amounting to

LBP39.1billion and LBP38.4billion for the years ended December 31, 2015 and 2014, respectively are

allocated as follows:

2015 2014

LBP’000 LBP’000

Allocated to general insurance departments - Note 32 25,865,204 25,385,860

Unallocated share of the head office 11,026,418 10,799,380

Life division share 2,200,000 2,200,000

39,091,622 38,385,240

Total general and administrative expenses in 2015 and 2014 consist of the following:

2015 2014

LBP’000 LBP’000

Salaries and related charges 23,531,043 23,528,219

General operating expenses 14,339,846 13,591,000

Depreciation and amortization expense 1,220,733 1,266,021

39,091,622 38,385,240

The expenses allocated to the general insurance departments are made on the basis of the ratio of the

net premiums of each department to the total net premiums.

Depreciation expense of Ain Al Mreisseh building in the amount of LBP84million in 2015 and 2014 is

recorded under “net loss from building” in the consolidated statement of profit or loss.

(b) Life Division:

Total general and administrative expenses of the life division are distributed as follows:

2015 2014

LBP’000 LBP’000

Salaries and related charges 7,360,659 7,107,855

General operating expenses 2,876,942 2,713,434

Depreciation of furniture and equipment 105,063 109,147

Amortization of computer software 41,896 35,717

10,384,560 9,966,153

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34. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table shows the fair values of financial assets recognized in the financial statements, including their levels in the fair value hierarchy. It

does not include financial assets and financial liabilities which are not measured at fair value and where the directors consider that the carrying

amounts of these financial assets and liabilities are reasonable approximations of their fair value:

General Insurance Departments

Fair Value as at December 31, 2015

Level 1 Level 2 Level 3 Total Valuation Technique and Key Inputs

LBP’000 LBP’000 LBP’000 LBP’000

Investment securities at fair value through profit or loss:

Foreign corporate bonds - quoted 292,057 - - 292,057 Quoted prices in an active market

Equity securities - quoted 7,512,892 - - 7,512,892 Quoted prices in an active market

Funds - quoted 6,811,441 - - 6,811,441 Quoted prices in an active market

Funds - unquoted - 241,879 - 241,879 Net asset value

14,616,390 241,879 - 14,858,269


other comprehensive income:

Foreign corporate bonds – quoted 599,608 - - 599,608 Quoted prices in an active market


Equity securities - unquoted - - 10,477,526 10,477,526 Net book value


56,982,850 464,352 10,477,526 67,924,728

Investment securities at amortized cost:

Lebanese corporate bonds - unquoted - - 301,500 301,500 Management estimate based on unobservable input related

to market volatility and liquidity

Lebanese government bonds - unquoted - 883,436 - 883,436 DCF at a discount rate determined based on the yield on

USA treasury bills and the Credit Default Swap

applicable to Lebanon subject to illiquidity factor

Foreign corporate bonds - quoted 9,505,397 - - 9,505,397 Quoted prices in an active market

9,505,397 883,436 301,500 10,690,333

70

General Insurance Departments



LBP’000 LBP’000 LBP’000 LBP’000


Foreign corporate bonds - quoted 491,489 - - 491,489 Quoted prices in an active market




15,490,431 510,958 - 16,001,389



Foreign corporate bonds - unquoted - - 150,750 150,750 Management estimate based on unobservable input related to

market volatility and liquidity


Equity securities - unquoted - - 10,117,559 10,117,559 Net book value


63,677,008 517,172 10,268,309 74,462,489


Lebanese corporate bonds - unquoted - - 152,449 152,449 Management estimate based on unobservable input related to

market volatility and liquidity

Lebanese government bonds - unquoted - 753,750 - 753,750 DCF at a discount rate determined based on the yield on USA

treasury bills and the Credit Default Swap applicable to

Lebanon subject to illiquidity factor


9,702,452 753,750 152,449 10,608,651

71

Life Division



LBP’000 LBP’000 LBP’000 LBP’000


Foreign bonds - quoted 1,091,446 - - 1,091,446 Quoted prices in an active market

Equity securities - quoted 133,627 - - 133,627 Quoted prices in an active market


41,401,200 - - 41,401,200




Equity securities - unquoted - - 1,979,414 1,979,414 Management estimate based on unobservable input related


378,219 - 1,979,414 2,357,633





treasury bills and the Credit Default Swap

applicable to Lebanon subject to illiquidity factor


9,907,719 415,694 752,243 11,075,656

72

Life Division



LBP’000 LBP’000 LBP’000 LBP’000


Foreign bonds - quoted 444,071 - - 444,071 Quoted prices in an active market



39,301,614 - - 39,301,614




Equity securities - unquoted - - 1,911,645 1,911,645 Management estimate based on unobservable input related to

449,579 - 1,911,645 2,361,224 market volatility and liquidity





treasury bills and the Credit Default Swap applicable to

Lebanon subject to illiquidity factor


9,515,022 419,462 755,258 10,689,742

There have been no transfers between Level 1, Level 2 and Level 3 during the year.

73

35. INSURANCE AND FINANCIAL RISK MANAGEMENT

(A) Insurance Risk for General Departments:

The risk under any one insurance contract is the possibility that the insured event occurs and the

uncertainty of the amount of the resulting claim. By the nature of an insurance contract, this risk is

random and therefore unpredictable.

The principal risk that the Group faces under its insurance contracts is that the actual claims and

benefit payments exceed the carrying amount of the insurance liabilities, in addition to probability of

underpricing of risks, imposing inadequate terms or selecting low quality or uninsurable risks. Thus

the frequency or severity of claims and benefits become greater than estimated. Insurance events are

random and the actual number and amount of claims and benefits will vary from year to year from the

estimate established.

Experience shows that the larger the portfolio of similar insurance contracts, the smaller the relative

variability about the expected outcome will be. In addition, a more diversified portfolio is less likely to

be affected across the board by a change in any subset of the portfolio. The Group has developed its

insurance underwriting strategy to diversify the type of insurance risks accepted and within each of

these categories to achieve a sufficiently large population of risks to reduce the variability of the

expected outcome.

The Group manages risks through its underwriting strategy, adequate reinsurance arrangements and

proactive claims handling. The underwriting strategy attempts to ensure that the underwritten risks are

well diversified in terms of type and amount of risk, industry and geography. Underwriting limits are

in place to enforce appropriate risk selection criteria.

(B) Life Insurance Risk

In the life insurance business a distinction is drawn between three types of underwriting risk: -

longevity, death and disability. The Group conducts an annual review and analysis of its customers

portfolios with regard to mortality, cancellation and reactivation. To manage disability risk and

improve risk performance, individual evaluations are used along the portfolio analyses for disability

risk to allow a better assessment of the exposure structure. The information gained is used in setting

appropriate prices and rates as well as ensuring that reserves are sufficient for future insurance

obligations to be met at all times. It also forms the basis for determining the risk capital that will be

required to offset unexpected deviations in the actuarial reserves.

(C) Reinsurance Risk

In common with other insurance companies, in order to minimize financial exposure arising from large

insurance claims, the Group, in the normal course of business, enters into arrangements with other

parties for reinsurance purposes.

74

To minimize its exposure to significant losses from reinsurer insolvencies, the Group evaluates the

financial condition of its reinsurers and monitors concentrations of credit risk arising from similar

geographic regions, activities or economic characteristics of the reinsurers.

The Group enters into reinsurance treaties that provide for the required capacities that fit its risk

profiles at competitive costs, while optimizing its retention levels through yearly as if exercises, taking

into consideration financial resources such as equity capital and free reserves, portfolio size and liquid

assets. Its retention levels fit the empirical rules and general benchmarks, and, most importantly,

ensure that the Group's solvency ratio remains high.

Reinsurance ceded contracts do not relieve the Group from its obligations to policyholders. The

Group remains liable to its policyholders for the portion reinsured to the extent that any reinsurer does

not meet the obligations assumed under the reinsurance agreements.

(D) Sensitivity of underwriting profit and losses

The Group does not foresee any significant reduction in the profit contributed by the insurance

operations to the total profit of the Group due to the following reasons:

The Group has an overall retained premiums level of 68% (72% for the year 2014) of the gross written

premiums, and is mainly contributed by one class of business (i.e., Motor line) wherein the retention

level is 81% (84% for the year 2014). However, in this class the risk is adequately covered by excess

of loss reinsurance programs to guard against major financial impact.

The gross written premiums of the Motor lines increased by around 3.7% in the year 2015 compared to

prior year (decrease of 3.6% in the year 2014 compared to the year 2013), and the corresponding

retained premiums increased by 28.8% for the same period (decrease of 3.1% for the previous year

period).

The Group's reinsurance commission earnings increased by around 7.7% in the year 2015 compared to

prior year (decrease of 8.9% in the year 2014 compared to 2013). These earnings remain a comfortable

source of technical revenues.

The Group's policy is balancing its insurance portfolio through increasing its non-motor lines which

have higher returns on premiums than motor, and which have a lower retained premiums level than

motor, due to the fact that they are reinsured by treaties that keep their retained exposure at a safe level

to protect the results from random fluctuations, while at the same time improving the profitability of

its motor lines through a combination of underwriting measures and excess of loss treaties that would

protect the motor lines from peak losses. Hence, the Group is comfortable to maintain acceptable net

loss ratios and does not foresee any serious financial impact in the insurance net profit.

75

(E) Dealing with the accumulation of insurance risk

Concentration or accumulation of insurance risk is dealt with by the Group depending on the

concerned line of business:

(a) Marine Cargo, and for known accumulation of policies/declarations on one vessel, an

arrangement is usually made with reinsurers to reinsure the said vessel exceptionally on a

"per bottom basis" (as opposed to the normal arrangement of a "per policy basis").

(b) For Property business (Fire and Burglary):

1. In respect of small accumulation of insured risks, the group limits retained exposure by

not taking 1 retention for every risk when there are 2 or more insured adjacent risks,

whereby is reduced.

2. In respect of large accumulated or catastrophic exposures under Property, especially

from natural hazards such as earthquake, our Property reinsurers cover the group for

their shares of same.

3. In respect of accumulation of the retentions under our Property business, this is covered

by a per event non-proportional treaty.

(c) Motor business is covered by per occurrence excess of loss treaties that also cover

involvement of more than one vehicle in one accident.

(d) For the Liability adequacy test, the Group has built up over the years reserves for

contingencies which would serve as well to offset any large event affected by a concentration

of insured risks, either in the same line of insurance or across the different lines of insurance

covered by the Group.

(F) Market Risk

Market risk is the risk that arises from fluctuations in the value of, or income from, assets or in interest

or foreign exchange rates, including the risks arising from the mismatching of assets and liabilities.

Life insurers are also exposed to market risks on the liabilities side of their statement of financial

positions, especially interest rate risks stemming from the sale of long-term insurance policies with

interest guarantees. Because the clients often take on long-term commitments, in addition to the

guarantees they expect to profit from up trends on the financial markets in the form of bonuses.

Options embedded in the insurance policies afford clients the necessary flexibility for long-term

agreement. These three elements; guarantee, bonuses and options, essentially determine the financial

risk of classical, life insurance and policies. The Group seeks to reduce market risks by ensuring a

high level of diversification both in its investment portfolio and direct investments, hence, most of the

branch assets are invested in bank deposits with low market risk involved.

76

Interest Rate Risk

The Group's interest rate risk arises from the possibility that changes in market interest rates will affect

the value of interest earning assets and interest bearing liabilities. The financial assets of the Group are

subject to fixed and floating interest rates and therefore expose the Group to cash flow interest rate

risk. The financial liabilities of the Group are non-interest bearing except for bank borrowings and

overdrafts which are subject to floating interest.

Currency Risk:

Currency risk arises from the possibility that changes in foreign exchange rates will affect the value of

financial assets and liabilities stated in foreign currencies, whereby, the Group does not hedge its

currency exposure by means of hedging instruments. The Group’s monetary assets and monetary

liabilities are mostly denominated in U.S. Dollar, Lebanese Pound and other Arab currencies pegged

to the U.S. Dollar. The U.S. Dollar represents the functional currency of the Parent Company and has

been constant against the Lebanese Pound (LBP) since many years. Therefore, the Group has no

significant exposure to currency risk except to the Syrian currency which represents the functional

currency of the Group’s subsidiary in Syria. Any exchange differences arising from translating the

Syrian Pound to LBP are accumulated under equity.

(G) Liquidity risk

Liquidity risk is the risk that cash may not be available to pay obligations when due to a reasonable

cost.

The credit risk on liquid funds is limited because the counter-parties are banks with high credit ratings

assigned by international credit rating agencies. All the fixed deposits mature within different periods

not exceeding one year from the reporting date.

In addition, the Group's reinsurance contracts comprise, in addition to quarterly settlements of

balances, cash loss provisions that warrant the immediate settlement of the reinsurers of their shares of

a claim when same reach a certain amount.

(H) Credit Risk:

Credit risk concerns the possibility that debtors may no longer be able to meet their obligations.

Responsibility for monitoring credit risks lies with the individual companies, which follow stringent

Group-wide guidelines with regard to minimum borrower ratings and the diversification of credit risks

across all areas in which the Group is exposed to such risks, in particular the investment and

reinsurance segments.

77

The Group's principal financial assets that are subject to credit risks are bank balances, insurance and

other receivables, reinsurance receivables and investment portfolio.

The Group's credit risk is primarily attributable to its insurance receivables. The amounts presented in

the statement of financial position are net of allowances for doubtful receivables. An allowance for

impairment is made where there is an identified loss event which, based on previous experience, is

evidence of a reduction in the recoverability of the cash flows.

The Group has no significant concentration of credit risk, with exposure spread over a large number of

counterparties and customers.

36. CAPITAL MANAGEMENT

The Group manages its capital to ensure the Group’s ability to continue as a going concern, while

maximizing the return through the optimization of the liabilities and equity balance.

The Group manages the capital structure and makes the necessary revisions, in light of changes in the

economics of the business and the market conditions, and the risk characteristics of operations and

underlying assets. The Group’s overall strategy remains unchanged from prior year.

The capital structure of the Group consists of liabilities (excluding provision for contingencies and

offset by cash and cash equivalents) and equity of the Group.

The Group monitors the capital risk on the basis of the ratio of net liabilities to equity. The ratio as at

December 31, 2015 and 2014 was as follows:

December 31,

2015 2014

LBP’000 LBP’000

Liabilities (excluding provision for contingencies) 330,391,278 290,411,211

Less: Cash and cash equivalents ( 73,192,543) ( 66,971,730)

Net liabilities 257,198,735 223,439,481

Total equity 110,706,306 140,173,595

Gearing Ratio 2.32 1.59

37. CONTINGENT LIABILITIES

The Group is contingently liable as at December 31, 2015 and 2014 in respect of guarantees

aggregating to LBP34billion and LBP32.6billion respectively, issued in accordance with legal

requirements as security to policies issued (general branches and life branch). The majority of these

guarantees are covered by pledged funds deposited by the Group with the banks issuing these

guarantees.

78

38. NON CASH TRANSACTIONS

The following non cash transactions relating to investing and financing activities were excluded from

the statement of cash flows of the general insurance and the life division for 2015 and 2014:

General Insurance Departments:

- The net change in fair value of investment securities at fair value through other comprehensive

income amounted to LBP22.38billion during the year 2015 (LBP20.6billion for the year 2014) of

which fair value loss of LBP49million (LBP40.2million for the year 2014) related to non-controlling

interests against investment securities.

- Transfer of investment securities at FVTOCI along with related cumulative change in fair value in

the amount of LBP445million and LBP444million respectively, from the life division during the year

2014.

- Transfer of computer software with a net carrying value of LBP286million from property and

equipment to intangible assets during the year 2014.

- Transfer of building and related depreciation in the amount of LBP2.26billion and LBP121million,

respectively, to investment properties during the year 2015.

- Distribution of remunerations to the Board of Directors, Investment Committee, and Audit

Committee in the amount of LBP537million from the treasury shares.

Life Division:

- The net fair value loss of investment securities at fair value through other comprehensive income

amounted to LBP3.6million during the year 2015 (fair value gain of LBP74million for the year 2014)

against investment securities.

- Transfer of investment securities at FVTOCI along with related cumulative change in fair value in

the amount of LBP445million and LBP444million respectively to the general insurance departments

during the year 2014.

39. OTHER RESTRICTED RESERVE

General insurance departments:

In accordance with Article 10(bis) (b) amended by Capital Market Authority decision No. 19/2007 of

the Oman Insurance Companies executive regulation, 10% of the outstanding claims as of year-end, if

reporting profits, is transferred to a contingency reserve, until such reserve becomes equal to RO

5,000,000.

Life division:

In accordance with Article 10(bis) (c) amended by Capital Market Authority decision No. 19/2007 of

the Oman Insurance Companies executive regulation, 1% of the annual life premiums, if reporting

profits, is transferred to a contingency reserve, until such reserve becomes equal to RO 5,000,000. This

contingency reserve shall be allocated to meet any underwriting loss that might occur in the life

assurance division in any one year.

79

The other restricted reserve under the general insurance departments and the life division is not

available for dividend distribution.

40. PARTICIPATION IN SYNDICATES AND INSURANCE POOLS

The Group participates in the Arab War Risk Insurance Syndicate (AWRIS), an insurance syndicate

registered in Bahrain, specializing in War Risk Insurance and composed of group of insurance

companies that share profits proportionally in accordance with each company’s ceded premiums’ share

to the total premiums of the syndicate.

The Group also participates in the accumulated “Syndicate” and “Contingency” reserves of “AWRIS”,

noting that this participation in reserves is only due to the Group upon its withdrawal from the

Syndicate or upon the liquidation of the Syndicate, after recalculating the value of participation at that

date and based on certain contractual conditions.

In addition to above, the Group participates in other syndicates and insurance pools, the most

important of which are:

- The Lebanese Insurance Pool of The Orange Card

- The Lebanese Insurance Pool of Engineering Risks

- Bankers Blanket Bond Pool

The profits of these participations are recorded in the related insurance branches.

41. APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements for the year ended December 31, 2015 were approved by the

Board of Directors on April 26, 2016.

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