arab reinsurance company · mr. khaled el-hasan managing director & ceo gulf insurance company...

ARAB REINSURANCE COMPANY

ANNUAL REPORT 2013

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Table of Contents

Letter from the Chairman2-3

Board of Directors4

Management5

The Board of Directors’ Report as at 31/12/20136-11

Independent Auditor’s Report12-13

Statement of Financial Position as at 31/12/201314

Statement of Comprehensive Income15

Statement of Changes in Equity16

Statement of Cash Flows17

Notes to the Financial Statements18-52

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LETTER FROM THE CHAIRMAN

Dear Shareholders,

I am pleased to submit to your kind attention the report of the Board of Directors on the activities of Arab Reinsurance Company for the financial year ending on 31 December 2013. The achieved results this year has significant importance that demonstrate the strength and stability of the company, as they were attained despite the regional volatility and all the other challenges that are jeopardizing the insurance and reinsurance industry in the Arab region.

The Company has achieved positive results in spite of the aforementioned events and their negative repercussions on the economies of the region in various forms. This was represented by a net profit amounting to USD 4.9 million. I am proud to say that in the face of the critical global economic conditions, the decline in international interest rates, the fluctuations in exchange rates, bonds and shares; the Company also managed to attain a satisfactory return on investment of 6.1% by maintaining its prudent, conservative, and diversified investment policy and providing value added services.

The positive financial and investment results have been accompanied by a growth in written premiums, amounting to USD 86 million, notwithstanding the fact that Arab Re upheld its conservative underwriting policy and continued to restructure its portfolios by maintaining the good accounts and by expanding into new markets. These were ventured into based on extensive research and technical studies using comprehensive databases and all the modern means of communication.

The Company continues to provide distinguished services to its clients and introduces new products in order to cater for their ever-changing needs, in addition to pursuing an expansionary policy that aims for further developments and achievements.

The Company maintained its B+ (good with a stable outlook) rating from the international rating agency A. M. Best, which is considered as a good rating in the midst of the pressing economic conditions and the big impact of the sovereign rating of Lebanon.

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The Company will seek to use all the elements needed to improve its rating; be it through increasing and diversifying its portfolio, expanding outside Lebanon, achieving profitable technical results, and continuing to develop the competence of its team. In this context, it is necessary to shed light on the importance the management sees in investing in the training and development of its human resources which are considered its most important capital. The Company is also keen on constantly developing communication means and computer software, in addition to providing a suitable working environment. In conclusion, I am pleased to convey my great appreciation and thanks to the Company’s clients, shareholders, Board of Directors, and committees, for their ongoing support and cooperation. My appreciation goes as well to the Company’s management and staff, for their industrious efforts and loyalty. I also hope that the prevailing market obstacles are overcome soon, which will enable the company to attain its aspirations whether in terms of profits or other targets,

Khaldoun Barakat Chairman

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Board of Directors

Sheikh Khaldoun Barakat (Saudi Arabia) Mr. Tanous Feghali Chairman and General Manager General Insurance Company for the Near East Al Ittihad Al Watani (Lebanon) Mr. Khaled El-Hasan Managing Director & CEO Gulf Insurance Company (Kuwait) Mr. Seba Hadj Mohamed Chairman and General Manager Compagnie Centrale de Réassurance (Algeria) Mr. Abdullah R. Ibraheem Chairman & General Manager Iraq Reinsurance Company (Iraq) Mrs. Lamia Ben Mahmoud President – General Manager Tunis Reinsurance Company (Tunisia) Mr. Samer Barakat Assistant General Manager Itjar Trading Company (Saudi-Arabia) Mr. Mouhamed Wally Delegated Member Libya Insurance Company (Libya) Mrs. Amany Elmahy General Manager Reinsurance Misr Insurance Company (Egypt)

Chairman Vice-Chairman Member Member Member Member Member Member Member

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Management

Sheikh Khaldoun Barakat Chairman

Mr. Tanous Feghali Vice-Chairman

Mr. Ronald Chidiac General Manager

Mr. Salim Kojok Assistant General Managers Administration

Mrs. Basma Barakat Technical

Mr. Hussain Mallouk Finance

Mr. Mouhamed Hammound Managers Technical

Mrs. Hala Saleh Human Resources

Mrs. Amina Koubeissy Current Accounts

Miss Husnieh Bachacha Technical Accounts

Mr. Nader Youness Administration

Mr. Michel Medawar Information Technology

Mr. Nehme Araman Arab Reinsurance Pool Director

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REPORT OF THE BOARD OF DIRECTORS for the Financial Year ending on December 31, 2013

Dear Shareholders,

Here is another year full of events on different levels; whether financial, political, economic, or other, in addition to the financial crisis that swept the international markets and the political instability still prevailing in some Middle Eastern countries, which limited the progress of the majority of the international, regional and local markets.

The Company’s wise policy and focused strategy contributed in achieving continued good results, amidst critical circumstances and big challenges; whereby the Company achieved, during the financial year ending on 31 December 2013, a net profit of USD 4.9 million. This result proves our success in performing our mission and reinforces our commitment to continue providing the best reinsurance services. As well, we attained good results in the investment activity, with revenues amounting to 6.1% on the available average of funds, thanks to the wise investment policy, the support of the Board of Directors, in addition to the results of our investment in a financial assets’ management company, whereas revenues on our invested funds amounted to 13.5%.

The Company achieved a growth in its portfolio for year 2013. Gross written premiums amounted to USD 86 million, in comparison to USD 72.6 million in year 2012, despite the aforementioned conditions, and in compliance with the conservative policy of the Board of Directors in accepting business. Not all this would have been achieved without a harmonious, motivated, and professional team, which is well managed.

Moreover, the Company maintained its rating of B+ (good with a stable outlook) from the international rating agency A.M. BEST, thanks to the achieved results, and despite the pressing economic circumstances that affected the situation of many companies, the decline in the volume of revenues, in addition to the continuing negative impact of the sovereign rating of the Lebanese Republic on the Company’s rating. We eagerly seek to improve our rating by increasing and diversifying our portfolio, expanding into new markets and studying the possibility to carry out our business from abroad.

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At Arab Re, we look forward to lead in launching new products, providing premium services, adhering to professional standards, and pursuing an expansionary policy, in order to achieve significant returns to our Shareholders, while constantly training and developing our staff; thus, improving their educational level and professional performance, as well as continuously updating our IT software. We are satisfied with the performance of our staff and the valuable trust of our agents, which is reinforced year after another, and we do hope to execute our plans for further progress. In conclusion, we would like to seize this opportunity to convey our great thanks and appreciation to our agents and Shareholders for their ongoing support and cooperation. Our appreciation goes as well to the Company’s management and its staff for their industrious efforts. Attached herewith are the audited financial statements and the analytical data for the financial results of the Company ending on 31 December 2013, in comparison to year 2012 statements.

Board of Directors

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Main indicators and developments of the Company’s activities in year 2013

First: Underwriting ActivitiesA. Gross Written Premiums

The gross written premiums reached at the end of year 2013 the amount of USD 86 million, in comparison to USD 72.6 million in the previous fiscal year, with an increase of 18.6%. This increase is due to the Company’s participation in new activities and products, in addition to accepting the business of takaful insurance.

65% of these premiums emanated from the Arab region.

The following table shows the GWP for each class of business:

Written Premiums Currency: US Dollars

Branch 2013 Branch% 2012 Branch

%

Increase/(Decrease)

%Fire 34,751,429 40.4% 27,462,831 37.9% 26.5%Accidents 27,662,086 32.2% 22,696,572 31.3% 21.9%Engineering 12,592,787 14.6% 11,489,794 15.8% 9.6%Total Non-Marine 75,006,302 87.2% 61,649,198 85.0% 21.7%Cargo 6,497,999 7.6% 6,848,071 9.4% (5.1)%Hull 2,551,344 3.0% 3,118,841 4.3% (18.2)%Aviation 92,745 0.1% 48,120 0 % 92.7%Total Marine 9,142,088 10.6% 10,015,032 13.8% (8.7)%Life 1,872,580 2.2% 887,151 1.2% 111.1%

Total 86,020,970 100 % 72,551,381 100 % 18.6%

2013 2012

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B. Retained Premiums

The Company’s retention levels differ from one line of business to the other; however, in most cases its retention is protected by appropriate Excess of Loss covers. Retained premiums in all classes during the period under consideration amounted to USD 66.5 million, representing 77% of the Gross Written Premiums, compared to USD 57.1 million in the previous year, which represented 79% of the Gross Written Premiums.

The increase in retention level this year is due to the increase in the accepted business, whilst continuing to re-visit the adequacy of its excess of loss covers that protects it from large losses as well as catastrophic events.

C. Commissions & Acquisition Costs

This section includes the original commissions, profit commissions, reinsurance brokerages and other reinsurance related deductions. The total amount paid during the period under review amounted to USD 25.2 million, compared to USD 19.7 million in the previous year. The percentage of acquisition costs this year was equivalent to 29% of GWP, with a minor difference than prior year equivalent to 2%. This low level is maintained due to the inward's business results and increase acceptance of non-proportional covers, which are characterized by lower commissions.

D. Incurred Losses

The total incurred losses during the year under consideration amounted to USD 54.6 million, compared to USD 41.4 million in the previous year, representing an increase of 31%.

The Company’s net retained loss ratio was 72% this year, compared to 65.1% last year. The reason for this increase is due to an increase in the volume of reported losses, in addition to the formation of additional reserves in order to cope with any potential losses, resulting from the storms that hit East Asia and the Middle East at the end of year 2013.

E. Results of Financial Year

In 2013, net profits amounted to USD 4.9 million, compared to USD 7.8 million in the previous year, representing 5.7% of the gross written premiums, compared to 10.7% in year 2012.

The percentage of these results from the net written premiums is equal to 7.4% this year, compared to 13.6% in the previous year.

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F. Combined Loss Ratio The Combined Loss Ratio for this year reached 101% compared to 93.6%. Such increase is due to the additional reserves in order to cope with any potential and not reported losses, resulting from the storms that hit East Asia and the Middle East at the end of year 2013.

Second: Investments

Invested funds during this year amounted on average to USD 137.5 million, compared to USD 131 million in the previous year. Such increase is mainly due to the increase in the written premiums during the last two years; thus the increase of the collected amounts from ceding companies.

Moreover, the return on investment this year amounted to USD 8.4 million; thus, effectively to what was budgeted at the beginning of the financial year and which is equivalent to USD 8.2 million, despite the economic difficulties, and the decline in international interest rates. This was possible due to our rational and conservative investment policy and its diversification geographically and by type; which decreased our investment and financial risks. The above was accomplished while upholding our commitment to our clients and our policy to prompt claim payments.

It shall be noted that the invested funds include cash at banks, term deposits in banks, and nonresident financial institutions, in addition to investments in securities and fixed assets.

Third: General & Administrative Expenses

The General and Administrative expenses amounted this year to USD 5 million, representing 5.8% of the gross written premiums, compared to 6.3% in the previous year. The expenses' rate from the earned and retained premiums is equivalent to 7.6%, compared to 8.1% in the previous year. This regression is due to the increase in business portfolio, without an increase in the general and administrative expenses.

Fourth: Allotments of Financial Year Result

The Company achieved a net profit of USD 4,920,214 in 2013. The Board of Directors, in its meeting held on 6 March 2014, decided to distribute the net income of the financial year ended 31 December 2013, subject to the approval of the General Assembly of the Company’s Shareholders, as follows:

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US Dollars

Net income for the yearProposed allotments:

4,920,214

1- Transfer to capital reserve at 10% (492,021)

2- Distribution of dividends at 5% of paid up capitalas at 31 December 2013, as a first payment according to Company’s by-laws

(3,403,228)

3- Distribution of dividends at 1% of paid up capital as at 31 December 2013, as an additional payment

(680,646)

Total proposed allotmentsNet balance (after proposed allotments)

(4,575,895)

To be transferred to the retained earnings accounts 344,319

According to Article 60 of the Company’s by-laws, 10% of the annual net income should be transferred to capital reserve until the total of this reserve becomes equal to the Company’s capital.

Annual Progress of the Company’s Profits

(Amended)

Board of Directors

PricewaterhouseCoopers, Saba House Bldg., Block B/C, Said Freiha Str., Hazmieh, LebanonP.O. Box 11-3155, Beirut, Lebanon, Telephone +961 (5) 428600, Facsimile +961 (5) 951979, www.pwc.com/middle-east

Independent Auditor's Reportto the shareholders of Arab Reinsurance Company S.A.L.

Report on the financial statements

We have audited the accompanying financial statements of Arab Reinsurance CompanyS.A.L. ("the Company") which comprise the statement of financial position as of31 December 2013, the statements of comprehensive income, changes in equity and cashflows for the year then ended, and a summary of significant accounting policies and otherexplanatory notes.

Management's responsibility for the financial statements

Management is responsible for the preparation of financial statements that give a true andfair view in accordance with International Financial Reporting Standards and for suchinternal control as management determines is necessary to enable the preparation offinancial statements that are free from material misstatements, whether due to fraud orerror.

Auditor's responsibility

Our responsibility is to express an opinion on these financial statements based on our audit.We conducted our audit in accordance with International Standards on Auditing. Thosestandards require that we comply with ethical requirements and plan and perform the auditto obtain reasonable assurance about whether the financial statements are free frommaterial misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the financial statements. The procedures selected depend on the auditor'sjudgment, including the assessment of the risks of material misstatement of the financialstatements, whether due to fraud or error. In making those risk assessments, the auditorconsiders internal control relevant to the entity's preparation and fair presentation of thefinancial statements in order to design audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on the effectiveness of theentity's internal control. An audit also includes evaluating the appropriateness ofaccounting policies used and the reasonableness of accounting estimates made bymanagement, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion.

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Independent Auditor's Report (continued)to the shareholders of Arab Reinsurance Company S.A.L.

Opinion

In our opinion, the accompanying financial statements present fairly, in all materialrespects, the financial position of Arab Reinsurance Company S.A.L. as at31 December 2013, and of its financial performance and cash flows for the year then endedin accordance with International Financial Reporting Standards.

Emphasis of a matter

Without qualifying our opinion, we draw attention to Note 14. On 27 June 2013, the boardof directors took the decision to acquire the Company's own shares held by one of theshareholders under circumstances that are fully described in note 14. This acquisition wasreflected in the balance sheet as treasury shares. On 17 July 2013, the shareholder informedthe Company that they contested the validity of the Board decision and demanded thenullification of the decision. While the shareholder has intimated that they might pursue thecase by taking legal action, no such law suit has been served on the Company to date.

Beirut, Lebanon24 March 2014

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ARAB REINSURANCE COMPANY S.A.L.

Statement of financial positionas at 31 December 2013

2013 2012Note US$ US$

AssetsProperty and equipment 5 2,626,774 2,671,587Investment property 6 729,531 741,598Intangible assets 238,474 191,000Deferred acquisition costs 24 11,173,377 9,045,944Financial assets held to maturity 7 62,254,553 59,662,161Available for sale financial assets 8 6,932,558 8,409,955Financial asset at fair valuethrough profit or loss 9 7,603,590 7,182,239Insurance receivables 10 74,183,580 64,217,994Reinsurance assets 17 25,643,353 21,545,025Bank deposits with original maturityof more than 3 months 11 64,227,449 58,852,048Cash and cash equivalents 12 3,505,040 2,710,874

Total assets 259,118,279 235,230,425

Equity and liabilitiesEquityShare capital 14 75,000,000 75,000,000General reserve 4,500,000 4,500,000Legal reserve 15 11,622,856 10,846,590Fair value reserve 13 (79,293) (521,917)Treasury shares 14 (7,371,678) -Retained earnings 12,478,680 14,334,732

Total equity 96,150,565 104,159,405

LiabilitiesInsurance contracts 17 132,454,200 111,065,443Unearned reinsurance commission 22 3,236,720 2,501,215Retirement benefit obligation 18 344,803 190,006Accounts payable 19 26,756,512 17,174,036Income tax provision 28 175,479 140,320

Total liabilities 162,967,714 131,071,020

Total equity and liabilities 259,118,279 235,230,425

The financial statements on pages 3 to 40 were authorised for issue by the board of directors on24 March 2014 and signed on its behalf by the Chairman and the Vice chairman.

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Statement of comprehensive incomefor the year ended 31 December 2013

2013 2012Note US$ US$

Insurance premium revenue 20 84,572,343 66,602,653Insurance premium ceded to reinsurers 20 (17,717,456) (13,136,770)

Net insurance premium revenue 66,854,887 53,465,883Investment income 21 8,387,410 8,034,423Reinsurance commission income and profit sharing 22 5,547,584 3,982,669Other operating income 27 325,291 242,561

Net income 81,115,172 65,725,536

Insurance claims and loss adjustment expenses 23 (56,846,975) (40,741,247)Insurance claims and loss adjustment expensesrecovered from reinsurers 23 8,700,116 5,919,718

Net insurance claims (48,146,859) (34,821,529)Expenses for acquisition of insurance contracts 24 (23,119,781) (18,335,335)Expenses for administration and other expenses 25 (4,689,739) (4,595,031)

Expenses (75,956,379) (57,751,895)

Profit before tax 5,158,793 7,973,641Income tax 28 (238,579) (210,990)

Profit for the year 4,920,214 7,762,651Other comprehensive income for the yearChange in fair value reserve of availablefor sale financial assets 442,624 575,383

Total comprehensive income for the year 5,362,838 8,338,034

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ARABREINSURANCECOMPANYS.A.L.

Statementofchangesinequity

fortheyearended31December2013

Share

General

Legal

Fairvalue

Treasury

Retained

Capital

reserve

reserve

reserve

shares

earnings

Total

US$

US$

US$

US$

US$

US$

US$

Balanceat31December2011

75,000,000

4,500,000

10,296,909

(1,097,300)

-10,871,762

99,571,371

Profitfortheyear

--

--

-7,762,651

7,762,651

Othercomprehensiveincome

Changeinfairvaluereserveforavailable

forsalefinancialassets

--

-575,383

--

575,383

Totalcomprehensiveincome

75,000,000

4,500,000

10,296,909

-521,917

-18,634,413

107,909,405

Transactionswithowners

Dividendsrelatingto2011(note16)

--

--

(3,750,000)

(3,750,000)

Transfertolegalreserve(note15)

--

549,681

--

(549,681)

-


75,000,000

4,500,000

10,846,590

(521,917)

-14,334,732

104,159,405

Profitfortheyear

--

--

-4,920,214

4,920,214

Othercomprehensiveincome

-Changeinfairvaluereserveforavailable

forsalefinancialassets

--

-442,624

--

442,624

Totalcomprehensiveincome

--

-442,624

-4,920,214

5,362,838

Transactionswithowners

Dividendsrelatingto2012(note16)

--

--

-(6,000,000)

(6,000,000)

Transfertolegalreserve(note15)

--

776,266

--

(776,266)

-Treasuryshares

--

--

(7,371,678)

-(7,371,678)


75,000,000

4,500,000

11,622,856

(79,293)

(7,371,678)12,478,680

96,150,565

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Statement of cash flowsfor the year ended 31 December 2013

2013 2012Note US$ US$

Cash flows from operating activitiesNet cash provided from operating activities 30 6,860,650 4,701,781

Cash flows from investing activitiesPurchase of property and equipment 5 (19,010) (49,604)Purchase of intangible assets (47,474) (76,000)

Net cash used in investing activities (66,484) (125,604)

Cash flows from financing activitiesDividends paid (6,000,000) (3,750,000)

Net cash used in financing activities (6,000,000) (3,750,000)

Net increase in cash and cash equivalents 794,166 826,177Cash and cash equivalents at beginning of year 2,710,874 1,884,697

Cash and cash equivalents at end of year 12 3,505,040 2,710,874

The principal non-cash transaction consists of the purchase by the Company of treasuryshares for an amount of US$ 7.37 million (note 14). This amount was recorded as adeduction from shareholders' equity and as a payable to shareholder.

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Notes to the financial statementsfor the year ended 31 December 2013

1 General informationArab Reinsurance Company S.A.L. ("the Company") is incorporated and licensed by specialpresidential Decree Number 2933 on 11 March 1972 as a Lebanese joint stock company(Inter-Arab Company) registered at the Commercial Register of Beirut under number 26233to write reinsurance business and undertake investment activities.

2 Summary of significant accounting policies

The principal accounting policies applied in the preparation of these financial statements areset out below. These policies have been consistently applied to all the years presented, unlessotherwise stated.

2.1 Basis of presentation

The financial statements have been prepared in accordance with International FinancialReporting Standards (IFRS) as defined by IAS 1. They have been prepared under thehistorical cost convention as modified by the revaluation of land and buildings, investmentproperty, available-for-sale financial assets, financial assets and financial liabilities at fairvalue through profit or loss.

The preparation of financial statements in conformity with IFRS requires the use of certaincritical accounting estimates. It also requires management to exercise its judgment in theprocess of applying the Company's accounting policies. The areas involving a higher degreeof judgment or complexity, or areas where assumptions and estimates are significant to thefinancial statements are disclosed in note 3.

2.2 Adoption of new and revised IFRS

(a) New and amended standards effective for the financial year beginning1 January 2013

- Amendment to IAS 1, 'Financial statement presentation' regarding othercomprehensive income. The main change resulting from these amendments is arequirement for entities to group items presented in 'other comprehensive income'(OCI) on the basis of whether they are potentially reclassifiable to profit or losssubsequently (reclassification adjustments).

- IAS 19, 'Employee benefits' was revised in June 2011. The changes on the Company'saccounting policies has been as follows: to immediately recognise all past servicecosts; and to replace interest cost and expected return on plan assets with a net interestamount that is calculated by applying the discount rate to the net defined benefitliability (asset).

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2 Summary of significant accounting policies (Continued)

2.2 Adoption of new and revised IFRS (continued)

(a) New and amended standards effective for the financial year beginning1 January 2013 (continued)

- IFRS 13, 'Fair value measurement', aims to improve consistency and reducecomplexity by providing a precise definition of fair value and a single source of fairvalue measurement and disclosure requirements for use across IFRSs. Therequirements do not extend the use of fair value accounting but provide guidance onhow it should be applied where its use is already required or permitted by otherstandards within IFRSs.

The above mentioned amendments did not have a material impact on the Company.

(b) New standards and interpretations not yet adopted

A number of new standards and amendments to standards and interpretations are effective forannual periods beginning after 1 January 2013, and have not been applied in preparing thesefinancial statements. None of these is expected to have a significant effect on the financialstatements of the Company, except the following set out below:

- IFRS 9, 'Financial instruments' - (effective 1 January 2015), addresses theclassification, measurement and recognition of financial assets and financial liabilities.IFRS 9 was issued in November 2009 and October 2010. It replaces the parts of IAS39 that relate to the classification and measurement of financial instruments. IFRS 9requires financial assets to be classified into two measurement categories: thosemeasured as at fair value and those measured at amortised cost. The determination ismade at initial recognition. The classification depends on the entity's business modelfor managing its financial instruments and the contractual cash flow characteristics ofthe instrument. For financial liabilities, the standard retains most of the IAS 39requirements. The main change is that, in cases where the fair value option is taken forfinancial liabilities, the part of a fair value change due to an entity's own credit risk isrecorded in other comprehensive income rather than the income statement, unless thiscreates an accounting mismatch.

The Company is yet to assess the full impact of the above amendments on the financialstatements.

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2 Summary of significant accounting policies (continued)

2.3 Foreign currency translation

(a) Functional and presentation currency

Items included in the financial statements are measured using the currency of the primaryeconomic environment in which the Company operates ("the functional currency"). Thefinancial statements are presented in US Dollars ("US$"), which is the Company's functionaland presentation currency.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchangerates prevailing at the dates of the transactions or valuation where items are re-measured.Foreign exchange gains and losses resulting from the settlement of such transactions and fromthe translation at year-end exchange rates of monetary assets and liabilities denominated inforeign currencies are recognised in the statement of comprehensive income.

Changes in the fair value of monetary securities denominated in foreign currency classified asavailable for sale are analysed between translation differences resulting from changes in theamortised cost of the security and other changes in the carrying amount of the security.Translation differences related to changes in amortised cost are recognised in profit or loss,and other changes in carrying amount are recognised in other comprehensive income.

Translation differences on non-monetary financial assets and liabilities such as equities heldat fair value through profit or loss are recognised in profit or loss as part of the fair value gainor loss. Translation differences on non-monetary financial assets, such as equities classified asavailable for sale, are included in other comprehensive income.

2.4 Property and equipment

All property and equipment are stated at historical cost less depreciation. Historical costincludes expenditure that is directly attributable to the acquisition of the items.

Depreciation is calculated using the straight-line method to write off the cost or revaluedamount of each asset to their residual values over their estimated useful lives as follows:

Years

Buildings 50Leasehold improvements 3Office equipment 5 - 13Furniture 13Other equipment 10

Subsequent expenditures are included in the asset's carrying amount or recognised as aseparate asset, as appropriate, only when it is probable that future economic benefitsassociated with the item will flow to the Company and the cost of the item can be measuredreliably. All other repairs and maintenance are charged to the statement of comprehensiveincome during the financial period in which they are incurred.

An asset's carrying amount is written down immediately to its recoverable amount if theasset's carrying amount is greater than its estimated recoverable amount. The recoverableamount is the higher of the asset's fair value less costs to sell and value in use.

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2.4 Property and equipment (continued)

Gains and losses on disposals are determined by comparing the proceeds with the carryingamount. These are included in the statement of comprehensive income. Upon sale of revaluedassets, the related amounts accounted for under fair value reserves will be transferred toretained earnings.

2.5 Investment properties

Property held for long-term rental yields that is not occupied by the Company is classified asinvestment property.

Investment property comprises land and buildings which are stated at historical cost based onIAS 40 'Investment property'.

Depreciation on the building is calculated using the straight-line method to allocate cost overthe estimated useful economic lives. The estimated useful economic life is 50 years.

The investment property carrying amount will be written down immediately to its recoverableamount, if the asset's carrying amount is greater than its estimated recoverable amount.

2.6 Intangible Assets

Acquired computer software is capitalised on the basis of the costs incurred to acquire andbring to use the specific software. These costs are amortised on the basis of the software'sexpected useful life (three to five years).

2.7 Financial assets

2.7.1 Classification

The Company classifies its financial assets in the following categories: financial assets at fairvalue through profit and loss, available for sale financial assets, held to maturity financialassets and loans and receivables. The classification depends on the purpose for which thefinancial assets were acquired. Management determines the classification of its financialassets at initial recognition and re-evaluates this designation at every reporting date.

(a) Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are financial assets held for trading. Afinancial asset is classified in this category if acquired principally for the purpose of selling inthe short term. Assets in this category are classified as current assets if expected to be settledwithin 12 months, otherwise they are classified as non-current.

(b) Available-for-sale financial assets

Available-for-sale investments are financial assets that are intended to be held for anindefinite period of time, which may be sold in response to needs for liquidity or changes ininterest rates, exchange rates or equity prices or that are not classified as loans andreceivables, held-to-maturity investments or financial assets at fair value through profit orloss.

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2.7 Financial assets (continued)

2.7.1 Classification (continued)

(c) Held to maturity financial assets

Held-to-maturity investments are non-derivative financial assets with fixed or determinablepayments and fixed maturities that the Company's management has the positive intention andability to hold to maturity, these do not include:(i) those that the Company intends to sell immediately or in the short term, which are

classified as held for trading, and those that the Company upon initial recognitiondesignates as at fair value through profit or loss;

(ii) those that the Company upon initial recognition designates as available for sale; or(iii) those for which the holder may not recover substantially all of its initial investment,

other than because of credit deterioration.

Interest on held-to-maturity investments is included in the statement of comprehensiveincome and reported as 'Interest and similar income'. In the case of impairment, theimpairment loss is reported as a deduction from the carrying value of the investment andrecognised in the statement of comprehensive income as "Net investment income (loss)".

(d) Loans and Receivables

Receivables are non-derivative financial assets with fixed or determinable payments that arenot quoted in an active market, other than those that the Company intends to sell immediatelyor in the short term, which are classified as at fair value through profit or loss.

Receivables are recognised initially at fair value and measured subsequently at amortised costusing the effective interest rate method, less provision for impairment. A provision forimpairment of receivables is established when there is objective evidence that the Companywill not be able to collect all amounts due according to their original terms. Receivablesarising from insurance contracts are also classified in this category and are reviewed forimpairment as part of the impairment review of receivables.

2.7.2 Recognition and measurement

Regular way purchases and sales of financial assets are recognised on the trade-date – the dateon which the Company commits to purchase or sell the asset. Investments are initiallyrecognised at fair value plus transaction costs for all financial assets not carried at fair valuethrough profit or loss.

Gains or losses arising from changes in the fair value of the 'financial assets at fair valuethrough profit or loss' category are presented in the statement of comprehensive incomewithin 'investment income' in the period in which they arise. Dividend income from financialassets at fair value through profit or loss is recognised in the statement of comprehensiveincome as part of other income when the Company's right to receive payments is established.

Changes in the fair value of monetary and non-monetary securities classified as available forsale are recognised in other comprehensive income.

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2.7.2 Recognition and measurement (continued)

Financial assets are derecognised when the rights to receive cash flows from the investmentshave expired or have been transferred and the Company has transferred substantially all risksand rewards of ownership. Available-for-sale financial assets are subsequently carried at fairvalue. Receivables are carried at amortised cost using the effective interest rate method.

The unrealised gains and losses resulting from the changes in the fair value of investmentsclassified as available for sale are recognised in the fair value reserve in shareholders' equity.When securities available for sale financial assets investments are sold or impaired, theaccumulated fair value adjustments are recognised in the statement of comprehensive income.

Changes in the fair value of monetary securities denominated in a foreign currency andclassified as available for sale are analysed between translation differences resulting fromchanges in the amortised cost of the security and other changes in the carrying amount of thesecurity. The translation differences on monetary securities are recognised in profit or loss;translation differences on non-monetary securities are recognised in equity. Changes in thefair value of monetary and non-monetary securities classified as available for sale arerecognised in equity.

Interest on available for sale investments are recognised using the effective interest method isin the statement of comprehensive income. Dividends on available for sale equity instrumentsare recognised in the statement of comprehensive income when the Company's right toreceive payments is established. These revenues are recognised under investment income.

The fair values of quoted investments are based on current bid prices. If the market for afinancial asset is not active, the Company establishes fair value by using valuation techniques.These include the use of recent arm's length transactions, reference to other instruments thatare substantially the same, discounted cash flow analysis and option pricing models makingmaximum use of market inputs and relying as little as possible on entity-specific inputs.

2.7.3 Determination of fair value

For financial instruments traded in active markets, the determination of fair values of financialassets is based on quoted market prices or dealer price quotations. The quoted market priceused for financial assets held by the Company is the current bid price.

A financial instrument is regarded as quoted in an active market if quoted prices are readilyand regularly available from an exchange, dealer, broker, industry Company, pricing serviceor regulatory agency, and those prices represent actual and regularly occurring markettransactions on an arm's length basis. If the above criteria are not met, the market is regardedas being inactive.

For example a market is inactive when there is a wide bid-offer spread or significant increasein the bid-offer spread or there are few recent transactions.

For all other financial instruments, fair value is determined using valuation techniques. Inthese techniques, fair values are estimated from observable data in respect of similar financialinstruments, using models to estimate the present value of expected future cash flows or othervaluation techniques, using inputs existing at the dates of the statement of financial position.

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ARAB REINSURANCE COMPANY S.A.L.2 Summary of significant accounting policies (continued)


2.7.3 Determination of fair value (continued)

In cases where the fair value of unlisted equity instruments cannot be determined reliably, theinstruments are carried at cost less any impairment.

The carrying value less impairment provision of accounts receivables and payables areassumed to approximate their fair values, as they are of short term nature maturing in a periodof less than one year.

2.8 Reclassification of financial assets

Financial assets other than loans and receivables are permitted to be reclassified out of theheld-for-trading category only in rare circumstances arising from a single event that is unusualand highly unlikely to recur in the near-term. In addition, the Company may choose toreclassify financial assets that would meet the definition of loans and receivables out of theheld-for-trading or available-for-sale categories if the Company has the intention and ability tohold these financial assets for the foreseeable future or until maturity at the date ofreclassification.

Reclassifications are made at fair value as of the reclassification date. Fair value becomes thenew cost or amortised cost as applicable, and no reversals of fair value gains or lossesrecorded before reclassification date are subsequently made. Effective interest rates forfinancial assets reclassified to loans and receivables and held-to-maturity categories aredetermined at the reclassification date. Further increases in estimates of cash flows adjusteffective interest rates prospectively.

2.9 Impairment of financial assets

(a) Financial assets carried at fair value

The Company assesses at each balance sheet date whether there is objective evidence that afinancial asset or a group of financial assets is impaired. In the case of equity securitiesclassified as available for sale, a significant or prolonged decline in the fair value of thesecurity below its cost is considered in determining whether the securities are impaired. If anysuch evidence exists for available for sale financial assets, the cumulative loss - measured asthe difference between the acquisition cost and current fair value, less any impairment loss onthat financial asset previously recognised in profit or loss - is removed from equity andrecognised in the statement of comprehensive income. Impairment losses recognised in thestatement of comprehensive income on equity instruments are not subsequently reversed.

The impairment loss is reversed through the statement of comprehensive income, if in asubsequent period, the fair value of a debt instrument classified as available for sale increasesand the increase can be objectively related to an event occurring after the impairment loss wasrecognised the in statement of comprehensive income.

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2.9 Impairment of financial assets (continued)

(b) Assets carried at amortised cost

The Company assesses at each reporting date whether there is objective evidence that afinancial asset or group of financial assets is impaired. A financial asset or group of financialassets is impaired and impairment losses are incurred only if there is objective evidence ofimpairment as a result of one or more events that have occurred after the initial recognition ofthe asset (a 'loss event') and that loss event (or events) has an impact on the estimated futurecash flows of the financial asset or group of financial assets that can be reliably estimated.

The criteria that the Company uses to determine that there is objective evidence of animpairment loss include:

- significant financial difficulty of the issuer or obligor;- a breach of contract, such as a default or delinquency in interest or principal payments;- the lender, for economic or legal reasons relating to the borrower's financial difficulty,

granting to the borrower a concession that the lender would not otherwise consider;- it becomes probable that the borrower will enter bankruptcy or other financial

reorganisation;- the disappearance of an active market for that financial asset because of financial

difficulties; or- observable data indicating that there is a measurable decrease in the estimated future

cash flows from a portfolio of financial assets since the initial recognition of thoseassets, although the decrease cannot yet be identified with the individual financialassets in the portfolio, including:

(i) adverse changes in the payment status of borrowers in the Company; and(ii) national or local economic conditions that correlate with defaults on the assets

in the Company.

The Company first assesses whether objective evidence of impairment exists individually forfinancial assets that are individually significant. If the Company determines that no objectiveevidence of impairment exists for an individually assessed financial asset, whether significantor not, it includes the asset in a group of financial assets with similar credit risk characteristicsand collectively assesses them for impairment. Assets that are individually assessed forimpairment and for which an impairment loss is or continues to be recognised are notincluded in a collective assessment of impairment.

For the purpose of a collective evaluation of impairment, financial assets are grouped on thebasis of similar credit risk characteristics (ie, on the basis of the Company's grading processthat considers asset type, industry, geographical location, past-due status and other relevantfactors). Those characteristics are relevant to the estimation of future cash flows for groups ofsuch assets by being indicative of the issuer's ability to pay all amounts due under thecontractual terms of the debt instrument being evaluated.

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2.9 Impairment of financial assets (continued)

(b) Assets carried at amortised cost (continued)

If there is objective evidence that an impairment loss has been incurred, the carrying amountof the asset is reduced through the use of an allowance account and the amount of the loss isrecognised in the statement of comprehensive income. If in a subsequent period, the amountof the impairment loss decreases and the decrease can be related objectively to an eventoccurring after the impairment was recognised, the previously recognised impairment loss isreversed by adjusting the allowance account. The amount of the reversal is recognised instatement of comprehensive income.

(c) Other non-financial assets

Assets that have an indefinite useful life, for example land, are not subject to amortisation andare tested annually for impairment. Assets that are subject to amortisation are reviewed forimpairment whenever events or changes in circumstances indicate that the carrying amountmay not be recoverable. An impairment loss is recognised for the amount by which the asset'scarrying amount exceeds its recoverable amount. The recoverable amount is the higher of anasset's fair value less costs to sell and value in use. For the purpose of assessing impairment,assets are grouped at the lowest levels for which there are separately identifiable cash flows.

2.10 Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the balance sheetwhen there is a legally enforceable right to offset the recognised amounts and there is anintention to settle on a net basis or realise the asset and settle the liability simultaneously.

2.11 Dividend distribution

Dividend distribution to the Company's shareholders is recognised as a liability in theCompany's financial statements in the period in which the dividends are declared by thegeneral assembly of shareholders.

2.12 Retirement benefit obligations

The Company is subscribed to the compulsory defined benefit plan in accordance with theNational Social Security Fund. A defined benefit plan is a pension plan that defines anamount of pension benefit that an employee will receive on retirement, usually dependent onone or more factors such as age, years of service and compensation.

The liability recognised in the balance sheet in respect of the defined benefit plan is thepresent value of the defined benefit obligation at the balance sheet date less contributions tothe fund, together with adjustments for actuarial gains/losses and past service costs. Thedefined benefit obligation is calculated annually by the Company using the projected unitcredit method. The present value of the defined benefit obligation is determined bydiscounting the estimated future cash outflows using interest rates of government securitiesthat have terms to maturity approximating the terms of the related liability.

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2.13 Cash and cash equivalents

Cash and cash equivalents consist of deposits held at call with banks, other short-term highlyliquid investments with original maturities of three months or less.

2.14 Share capital

Ordinary shares are classified as equity.

2.15 Treasury shares

When an entity purchases its own shares and holds them in treasury 'treasury shares', theamount paid is deducted from equity. No gain or loss should be recognised in profit or losson the purchase, sale, issue or cancellation of an entity's own equity instruments.

2.16 Current income tax

The income tax charge is calculated at the rate of 15% of assumed profit which represents10% of gross premiums written in Lebanon and other operating income on the basis of thelocal laws.

2.17 Investment income

Investment income mainly comprises interest and dividend income and realised gains andlosses on sale of shares. Investment income is stated net of investment expenses and charges.

Interest income is recognised on accrual basis. Interest includes interest earned on bankdeposits and held to maturity investments. Dividend income is recognised under investmentincome when dividends are declared. Realised gains and losses from sale of investments arecalculated as the difference between net proceeds from sale and the carrying value ofinvestments.

2.18 Insurance contracts

The Company enters into insurance agreements whereby it compensates insurance companiesfor losses on one or more contracts issued by these companies. Such insurance agreementstransfer significant insurance risk to the Company.

(a) Recognition and measurement

The Company's insurance contracts cover general insurance risks insured by the Company.General insurance contracts cover insurance risks written by the ceding companies. Theyprotect the customers of the ceding companies from damage suffered to their assets as well asagainst the risk of causing harm to third parties as a result of their legitimate activities.General insurance contracts also protect the customers of the ceding companies from theconsequences of events such as illness and disability.

Premiums are recognised as revenue when they are underwritten, and they include anestimation of underwritten premiums that are not yet received from the ceding companies andin proportion with the period of coverage. Unearned premiums represent the proportion ofpremiums accepted in the year that relate to unexpired terms of policies in force at thestatement of financial position date, calculated on a time apportionment basis.

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2.18 Insurance contracts (continued)

(a) Recognition and measurement (continued)

Claims and loss adjustments expenses are recognised in the statement of comprehensiveincome when incurred and based on the estimated claims on the basis of the ultimate cost ofsettling the claims, using the ultimate loss ratios of the benefits due to contract holders and thethird parties affected by the contract holders. These expenses include claims and lossadjustment expenses direct or indirectly related to events occurring within the balance sheetdate even if they were not reported to the Company.

The claims provisions cover future payments obligations from claims in respect of which theamount of the insurance benefit and / or the time of payment are still uncertain. These areestablished for losses from loss events that occurred prior to the statement of financialposition date. The level of the provision is based on information provided by cedants.Additional provisions are constituted in cases where the provisions indicated by cedants areconsidered to be inadequate. The provisions also include claim settlement costs.

Taking into consideration the fact that significant time lags may exist between loss events andnotification of the claims to the Company, incurred but not reported claims ("IBNR") areestablished on the basis of the Company's own estimates for claims that have already beenincurred but not yet reported. These are guided by the principle of best estimate usingactuarial methods (e.g. ultimate loss ratio methods). Such estimates are based upon both pastexperience and assessments of the future development. The adequacy of the provisions isregularly reviewed.

The company does not discount liabilities for unpaid claims.

(b) Deferred acquisition costs

Commissions and other acquisition costs that are related to securing new contracts andrenewing existing contracts are capitalised as deferred acquisition costs - ("DAC"). All othercosts are recognised as expenses when incurred. The DAC is subsequently amortised over thelife of the contract. The resulting change to the carrying value of the DAC is charged to thestatement of comprehensive income.

(c) Reinsurance contracts held

Contracts entered into by the Company with reinsurers under which the Company iscompensated for losses on one or more insurance contracts issued by the Company areclassified as reinsurance contracts held.

The benefits to which the Company is entitled under its reinsurance contracts held arerecognised as reinsurance assets. These assets consist of short-term balances due fromreinsurers (classified within receivables), as well as longer-term receivables (classified asreinsurance assets) that are dependent on the expected claims and benefits arising under therelated reinsurance contracts. Amounts recoverable from or due to reinsurers are measuredconsistently with the amounts associated with the reinsurance contracts and in accordancewith the terms of each reinsurance contract. Reinsurance liabilities are primarily premiumspayable for reinsurance contracts and are recognised as an expense when due.

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2.18 Insurance contracts (continued)

(c) Reinsurance contracts held (continued)

The Company assesses its reinsurance assets for impairment on a yearly basis. If there isobjective evidence that the reinsurance asset is impaired, the Company reduces the carryingamount of the reinsurance asset to its recoverable amount and recognises that impairment lossin the statement of comprehensive income. The Company gathers the objective evidence thata reinsurance asset is impaired using the same process adopted for financial assets held atamortised cost. The impairment loss is also calculated following the same method used forthese financial assets. These processes are described in note 2.9.

Reinsurance commissions income received from reinsurers are earned over the same period asthe related ceded premiums.

(d) Receivables and payables related to insurance contracts

Receivables and payables are recognised when due. These include amounts due to and frominsurance companies and brokers. If there is objective evidence that the reinsurance receivableis impaired, the Company reduces the carrying amount of the reinsurance receivableaccordingly and recognises that impairment loss in the statement of comprehensive income.The Company gathers the objective evidence that a reinsurance receivable is impaired usingthe same process adopted for loans and receivables. The impairment loss is also calculatedunder the same method used for these financial assets.

3 Critical accounting estimates and judgements

The Company makes estimates and assumptions that affect the reported amounts of assets andliabilities within the financial year. Estimates and judgments are continually evaluated andbased on historical experience and other factors, including expectations of future events thatare believed to be reasonable under the circumstances.

(a) The ultimate liability arising from claims under insurance contracts

The estimation of the ultimate liability arising from claims made under insurance contracts isone of the Company's critical accounting estimates. There are several sources of uncertaintythat need to be considered in the estimate of the liability that the Company will ultimately payfor such claims.

(b) Process used to decide on assumptions

The risks associated with insurance contracts are complex and subject to a number ofvariables that complicate quantitative sensitivity analysis.

The Company uses assumptions based on a mixture of internal and market data to measure itsclaims liabilities. Internal data is derived mostly from the Company's quarterly claims reportsand screening of the actual insurance contracts carried out at year-end to derive data for thecontracts held. The Company reviews the individual contracts and in particular the industriesin which the insured companies operate and the actual exposure years of claims. Thisinformation is used to develop scenarios related to the latency of claims that are used for theprojections of the ultimate estimated liability.

- 29 -


3 Critical accounting estimates and judgements (continued)

(b) Process used to decide on assumptions (continued)

The Company uses ultimate loss ratios by line of business based on history and experienceand multiplies this ratio by the earned premiums in order to estimate the ultimate cost ofclaims.

(c) Estimated premium revenue

Premiums revenue not reported by cedants at balance sheet date and relating to the currentunderwriting year is estimated based on average development factors computed usingtriangulation of data received per class of business and type of treaty.

4 Management of insurance and financial risk

The Company issues contracts that transfer issuance risks. This section summarises the waythe Company manages this risk.

4.1 Insurance risk

The risk under one insurance contract is the possibility that the insured event occurs and theuncertainty of the amount of the resulting claim. By the very nature of an insurance contract,this risk is random and therefore unpredictable.

The principal risk that the Company faces under its insurance contracts is that the actualclaims and benefit payments exceed the carrying amount of the insurance liabilities. Thiscould occur because the frequency or severity of claims and benefits are greater thanestimated. Insured events are random and the actual number and amount of claims andbenefits will vary from year to year from the level established using statistical techniques.

Experience shows that the larger the portfolio of similar insurance contracts, the smaller therelative variability about the expected outcome will be. In addition, a more diversifiedportfolio is less likely to be affected by a change in any subset of the portfolio. The Companyhas developed its insurance underwriting strategy to diversify the type of insurance risksaccepted and within each of these categories to achieve a sufficiently large population of risksto reduce the variability of the expected outcome.

Factors that aggravate insurance risk include lack of risk diversification in terms of type andamount of risk, geographical location and type of industry covered.

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4 Management of insurance and financial risk (Continued)

4.1 Insurance risk (continued)

(a) Frequency and severity of claims

The frequency and severity of claims can be affected by several factors. The Companymanages these risks through its underwriting strategy, adequate reinsurance arrangements andproactive claims handling.

The underwriting strategy attempts to ensure that the underwritten risks are well diversified interms of type and amount of risk and industry. Underwriting limits are in place to enforceappropriate risk selection criteria. For example, the Company has the right not to renewtreaties, it can impose deductibles and it has the right to reject the payment of a fraudulentclaim.

The Company is protected by reinsurance arrangements including quota share, surplus excessof loss treaties as well as catastrophe treaties.

The concentration of insurance risk before and after reinsurance in relation to the type ofgeneral insurance risk accepted is summarised below, with reference to the carrying amountof the related insurance liabilities (gross and net of reinsurance) arising from generalinsurance contracts:

As at 31 December 2013In US$

Type of riskFire Engineering Marine Motor Other Total

Gross 47,151,702 32,829,382 14,383,911 9,735,318 28,353,887 132,454,200Net 33,039,906 21,978,833 14,383,911 9,735,318 27,672,879 106,810,847

As at 31 December 2012In US$

Type of riskFire Engineering Marine Motor Other Total

Gross 38,720,573 27,219,628 15,541,050 11,268,945 18,315,247 111,065,443Net 27,578,067 18,129,881 14,564,456 11,268,945 17,979,069 89,520,418

- 31 -


4 Management of insurance and financial risk (continued)

4.1 Insurance risk (continued)

(b) Sources of uncertainty in the estimation of future claim payments

The estimated cost of claims includes direct expenses to be incurred in settling claims, net ofthe expected subrogation value and other recoveries. The Company takes all reasonable stepsto ensure that it has appropriate information regarding its claims exposures. However, giventhe uncertainty in establishing claims provisions, it is likely that the final outcome will proveto be different from the original liability established. The liability for these contracts comprisea provision for IBNR, a provision for reported claims not yet paid and a provision forunexpired risks at the balance sheet date.

In calculating the estimated cost of unpaid claims (both reported and not), the Company'sestimation techniques are a combination of loss-ratio-based estimates and an estimate basedupon actual claims experience using predetermined formulae where greater weight is given toactual claims experience as time passes.

The initial loss-ratio estimate is an important assumption in the estimation technique and isbased on previous years' experience, adjusted for factors such as premium rate changes,anticipated market experience and historical claims inflation.

The estimation of IBNR is generally subject to a greater degree of uncertainty than theestimation of the cost of settling claims already notified to the Company, where informationabout the claim event is available. IBNR claims may not be apparent to the insured untilseveral months after the event that gave rise to the claims has happened.

In estimating the liability for the cost of reported claims not yet paid the Company considersany information available from loss adjusters and information on the cost of settling claimswith similar characteristics in previous periods. Large claims are assessed on a case-by-casebasis or projected separately in order to allow for the possible distortive effect of theirdevelopment and incidence on the rest of the portfolio.

Where possible, the Company adopts multiple techniques to estimate the required level ofprovisions. This provides a greater understanding of the trends inherent in the experiencebeing projected. The projections given by the various methodologies also assist in estimatingthe range of possible outcomes. The most appropriate estimation technique is selected takinginto account the characteristics of the business class and the extent of the development of eachaccident year.

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4.2 Financial risk

The Company is exposed to a range of financial risks through its financial assets, financialliabilities, reinsurance assets and insurance liabilities. In particular the key financial risk isthat in the long term the proceeds from its financial assets are not sufficient to fund theobligations arising from its insurance contracts. The most important components of thisfinancial risk are market risk (interest rate risk, equity price risk and foreign currency risk),credit risk and liquidity risk.

These risks arise from open positions in interest rate, currency and equity products, all ofwhich are exposed to general and specific market movements. The risk that the Companyprimarily faces due to the nature of its investments and liabilities is equity price risk. TheCompany manages these positions to achieve investment returns in excess of its obligationsunder insurance contracts. The Company has not changed the processes used to manage itsrisks from previous periods.

4.2.1 Market risk

Market risk is comprised of interest rate risk, equity price risk and currency risk.

(i) Interest rate risk

The sensitivity analysis for interest rate risk illustrates how changes in the fair value or futurecash flows of a financial instrument will fluctuate because of changes in market interest ratesat the reporting date. The Company's revenue will be significantly affected by changes inprevailing interest rates since a portion of its income derives from interest on investments andbank deposits because interest-bearing assets earn interest at fixed rates.

The table below summarises the effective interest rate at balance sheet date:

Effective interest rate2013 2012% %

Held to maturity investments 7.4 7.3Bank deposits 5.1 5.5Cash and cash equivalents 0.8 0.5

A change of 5% in interest income from cash and bank deposits would result in a gain or lossfor the year of US$ 156,000 (2012 - US$ 164,000), recognised in the statement ofcomprehensive income.

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4.2 Financial risk (continued)

4.2.2 Market risk (continued)

(ii) Equity price risk

The sensitivity analysis for equity risk illustrates how fair value of equity securities willfluctuate because of changes in market prices, whether those changes are caused by factorsspecific to the individual equity issuer, or factors affecting all similar equity securities tradedin the market.

The equity securities described in this note are classified as available for sale financial assetsat fair value.

An increase or decrease in value by 5% (2012- 5%) would result in a change in fair value ofavailable for sale financial assets by US$ 346,628 (2012- US$ 420,498).

(iii) Currency risk

The Company underwrites insurance contracts mainly in US Dollars. The Companyconcentrates its investments in assets denominated in the same currency as their relatedliabilities, which reduces the foreign currency exchange risk for these operations. TheCompany's exposure to foreign currencies arises from assets and liabilities that aredenominated in currencies other than the US$.

In case of an increase or decrease in the exchange rate of Turkish Lira against US$ by 5%(2012- 5%) with all other variables held constant, the profit for the year would increase ordecrease by US$ 287,521 (2012 - US$ 364,502).

In case of an increase or decrease in the exchange rate of other currencies against the US$by 5% (2012- 5%) with all other variable held constant, the profit for the year would increaseor decrease by US$ 51,994 (2012- US$ 423,344).

The table below summarises the Company's exposure to foreign currency exchange rate riskat 31 December 2013 and 2012. The Company's assets and liabilities included in the table arecategorised by currency at their carrying amount.

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4.2.1 Market risk (continued)

(iii) Currency risk (continued)

Pegged Turkish Lira Other TotalUS$ to US$ in US$ in US$ in US$

As at 31 December 2013

AssetsProperty and equipment 2,626,774 - - - 2,626,774Investment property 729,531 - - - 729,531Intangible assets 238,474 - - - 238,474Deferred acquisition costs 3,497,267 2,178,809 1,631,313 3,865,988 11,173,377Financial assets held tomaturity 61,687,648 - - 566,905 62,254,553Available for salefinancial assets 6,932,558 - - - 6,932,558Financial asset atfair value throughprofit or loss 7,603,590 - - - 7,603,590Insurance receivables 19,675,982 13,871,208 8,835,651 31,800,739 74,183,580Reinsurance assets 7,796,322 5,065,751 3,792,819 8,988,461 25,643,353Bank deposits with originalmaturity of morethan 3 months 63,124,659 - - 1,102,790 64,227,449Cash and cash equivalents 2,934,707 - - 570,333 3,505,040

Total assets 176,847,512 21,115,768 14,259,783 46,895,216 259,118,279

Liabilities

Insurance contracts 41,418,046 25,839,956 19,346,839 45,849,359 132,454,200Unearned reinsurancecommission 1,013,546 631,032 472,465 1,119,677 3,236,720Retirement benefitobligation 344,803 - - - 344,803Accounts payable 24,745,901 853,649 190,903 966,059 26,756,512Income tax provision 175,479 - - - 175,479

Total liabilities 67,697,775 27,324,637 20,010,207 47,935,095 162,967,714

Net balance sheet positionat 31 December 2013 109,149,737 (6,208,869) (5,750,424) (1,039,879) 96,150,565

As at 31 December 2012

Total assets 166,911,919 18,982,265 8,181,421 41,154,820 235,230,425Total liabilities 36,238,973 29,738,882 15,471,470 49,621,695 131,071,020

Net balance sheet positionat 31 December 2012 130,672,946 (10,756,617) (7,290,049) (8,466,875) 104,159,405

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4.2.2 Credit risk

The Company has exposure to credit risk, which is the risk that a counterparty will be unableto pay amounts in full when due. Key areas where the Company is exposed to credit risk are:

– reinsurance assets including receivables from reinsurers;– amounts due from insurance contract holders;– amounts due from insurance intermediaries;– bank deposits; and– financial assets held to maturity

The Company structures the levels of credit risk it accepts by placing limits on its exposureto a single counterparty, or groups of counterparty. Such risks are subject to a regular review.Reinsurance is used to manage insurance risk. This does not, however, discharge theCompany's liability as primary insurer. If a reinsurer fails to pay a claim for any reason, theCompany remains liable for the payment to the policyholder. The creditworthiness ofreinsurers is considered by reviewing their financial strength prior to finalisation of anycontract.

The table below summarises assets bearing credit risk:

2013 2012US$ US$

Insurance receivables (excluding prepayments) 74,147,735 64,177,319Reinsurance assets 25,643,353 21,545,025Financial assets held to maturity 62,254,553 59,662,161Bank deposits with original maturity of morethan three months 64,227,449 58,852,048Cash and cash equivalents (excluding cash on hand) 3,497,835 2,705,712

Total assets bearing credit risk 229,770,925 206,942,265

These assets are analysed in the table below using Standard & Poor's rating or equivalentwhen not available. The concentration of credit risk is substantially unchanged compared tothe prior year.

2013 2012US$ US$

AA 3,514,566 2,450,000A 11,423,701 1,075,218BBB 15,139,577 11,860,816Below BBB or not rated 160,519,974 159,901,365

Total 190,597,818 175,287,399Pipeline receivable 39,173,107 31,654,866

229,770,925 206,942,265

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4Managementofinsuranceandfinancialrisk(continued)

4.2

Financialrisk(continued)

4.2.3

Liquidityrisk

Thetablebelowindicatestheestimatedamountandtimingofcashflowsarisingfromliabilities:

Paymentsduebyperiod

Carrying

Amount

0-1year

1-2years

2-3years

3-4years

5years

At31December2013

InUS$

Insurancecontracts

132,454,200

85,417,603

23,169,000

8,061,000

1,547,000

14,259,597

Otherliabilities

27,276,794

18,010,326

6,039,167

857,385

120,987

2,248,929

159,730,994

103,427,929

29,208,167

8,918,385

1,667,987

16,508,526

At31December2012

InUS$

Insurancecontracts

111,065,443

70,963,566

20,084,184

7,053,281

808,824

12,155,588

Otherliabilities

17,504,362

11,043,537

3,440,332

1,220,034

124,827

1,675,632

128,569,805

82,007,103

23,524,516

8,273,315

933,651

13,831,220

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ARAB REINSURANCE COMPANY S.A.L


4.3 Fair value hierarchy

The different levels have been defined as follows:

- Quoted prices (unadjusted) in active markets for identical assets or liabilities(level 1).

- Inputs other than quoted prices included within Level 1 that are observable for the asset orliability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level2).

- Inputs for the asset or liability that are not based on observable market data (that is,unobservable inputs) (level 3).

The following table shows an analysis of financial instruments recorded at fair value by level of thefair value hierarchy:

2013

Level 1 Level 2 Level 3 TotalUS$ US$ US$ US$

Available for sale 2,106,212 4,826,346 - 6,932,558At fair value through profit orloss

- 7,603,590 - 7,603,590

2,106,212 12,429,936 - 14,536,148

2012

Level 1 Level 2 Level 3 TotalUS$ US$ US$ US$

Available for sale 4,826,346 3,583,609 - 8,409,955At fair value through profit orloss

- 7,182,239 - 7,182,239

4,826,346 10,765,848 - 15,592,194

Unlisted equity securities amounting to US$ 645,000 were stated at cost in the absence of activemarkets or other means of reliably measuring their fair value.

During the year 2013, there were no transfers between level 1 and level 2 fair value measurements.

- 38 -


5Propertyandequipment

Land

Leasehold

Office

Other

&buildingimprovements

Furniture

equipment

equipment

Total

US$

US$

US$

US$

US$

US$

1January2012

Cost

2,962,112

225,000

411,829

23,648

240,176

3,862,765

Accumulateddepreciation

(409,945)

(216,563)

(337,188)

(23,648)

(204,608)

(1,191,952)

Netbookvalue

2,552,167

8,437

74,641

-35,568

2,670,813

Yearended31December2012

Openingnetbookamount

2,552,167

8,437

74,641

-35,568

2,670,813

Additions

--

37,769

1,607

10,228

49,604

Depreciationcharge

(35,674)

(8,437)

(1,937)

(1,607)

(1,175)

(48,830)

Closingnetbookamount

2,516,493

-110,473

-44,621

2,671,587

31December2012

Cost

2,962,112

225,000

449,598

25,255

250,404

3,912,369


(445,619)

(225,000)

(339,125)

(25,255)

(205,783)

(1,240,782)

Netbookvalue

2,516,493

-110,473

-44,621

2,671,587

- 39 -


5Propertyandequipment(continued)

Land

Leasehold

Office

Other

&building

improvements

Furniture

equipment

equipment

Total

US$

US$

US$

US$

US$

US$

Yearended31December2013

Openingnetbookamount

2,516,493

-110,473

-44,621

2,671,587

Additions

--

2,567

142

16,301

19,010

Depreciationcharge

(35,674)

-(13,062)

(142)

(14,945)

(63,823)

Closingnetbookamount

2,480,819

-99,978

-45,977

2,626,774

31December2013

Cost

2,962,112

225,000

452,165

25,397

266,705

3,931,379


(481,293)

(225,000)

(352,187)

(25,397)

(220,728)

(1,304,605)

Netbookvalue

2,480,819

-99,978

-45,977

2,626,774

- 40 -


6 Investment property

2013 2012US$ US$

Cost 924,983 924,983Accumulated depreciation (195,452) (183,385)

729,531 741,598

Investment property comprises leased and vacant commercial properties in the Beirut CentralDistrict and an apartment in Ras Beirut. The fair value of these properties amount toUS$ 3.03 million. The Company is holding these properties for long term rental incomepurposes. The Company's investment property rental revenue amounted to US$ 54,522 in2013 (2012- US$ 226,289).

7 Financial assets held to maturity2013 2012US$ US

Debt securities issued by Lebanese banks 2,180,000 2,180,000Debt securities issued by the Lebanese government 31,322,782 31,308,505Foreign debt securities 27,281,492 24,808,652Amortisation 124,619 -

60,908,893 58,297,157

Interest earned but not received 1,345,660 1,365,004

62,254,553 59,662,161

The table below analyses the maturity of the financial assets listed in the above:

Nominalvalue 1 – 5 years 6 – 10 years 11 – 15 years

Debt securities issued byLebanese banks 2,180,000 2,000,000 180,000 -

Debt securities issued by theLebanese government 31,322,782 17,217,782 7,000,000 7,105,000Foreign debt securities 27,281,492 15,451,492 11,630,000 200,000

60,784,274 34,669,274 18,810,000 7,305,000

- 41 -


7 Financial assets held to maturity (continued)

Summarised below is the movement of financial assets held to maturity:

2013 2012US$ US$

At beginning of year 58,297,157 53,684,122Additions 7,750,000 7,630,000Maturities (4,027,151) (3,035,167)Disposals (1,250,000) -Amortisation 138,887 18,202

At end of year 60,908,893 58,297,157

8 Available for sale financial assets

2013 2012US$ US$

Financial assets at fair value - listed 2,106,212 3,583,609Financial assets at fair value - unlisted 4,826,346 4,826,346

6,932,558 8,409,955

Unlisted securities include an investment in a local company of US$ 645,000. Thisinvestment is stated at cost in the absence of active markets or other means of reliablymeasuring its fair value.

Summarised below is the movement of available for sale financial assets:

2013 2012US$ US$

At beginning of year 8,409,955 6,664,075Additions - 1,170,497Disposals (1,591,240) -Net fair value gains 113,843 575,383

At end of year 6,932,558 8,409,955

Available for sale financial assets consist mainly of equity securities denominated in US$.

Available for sale listed financial assets are stated net of a provision for impairment ofUS$ 600,000 at 31 December 2013 (2012- US$ 300,000).

- 42 -


9 Financial asset at fair value through profit and loss

Financial asset at fair value through profit and loss represents an investment inCaerus Lebanon Debt Fund Ltd. The fund assets are mainly comprised of listed Treasury Billsand cash and cash equivalents.

Changes in financial assets at fair value through profit or loss are presented within 'operatingactivities' in the cash flow statement. Changes in fair values of financial assets at fair valuethrough profit or loss are recorded in 'investment income' in the statement of comprehensiveincome.

10 Loans and receivables including reinsurance receivables

2013 2012US$ US$

Pipeline receivables 39,173,107 31,654,866Due from insurance companies and brokers 12,760,664 11,036,299Provision for impairment of receivables (1,500,000) (1,800,000)Deposits with ceding companies 20,635,835 20,757,481Due from related parties (note 29) 1,904,738 1,154,828Accrued interest 861,938 1,265,061Commission from Arab Re Pool 237,970 33,416Prepaid expenses 35,845 40,675Due from employees 72,483 75,368Other 1,000 -

74,183,580 64,217,994

The carrying amount of loans and receivables approximates their fair values at31 December 2013 and 2012.

There is no concentration of credit risk with respect to balances due from insurancecompanies, as the Company has a large number of dispensed debtors.

As at 31 December 2013 and 2012, receivables with a carrying value ofUS$ 1.5 million (2012 – US$ 1.8 million) were impaired and fully provided for. All impairedreceivables were overdue more than one year.

As at 31 December 2013, past due but not impaired receivables due from insurancecompanies amount to US$ 7.6 million (2012 - US$ 9.2 million).

The interest rate received on deposits with ceding companies amounted to 1.5% per anum(2012- 1.5%).

11 Bank deposits with original maturity of more than 3 monthsBank deposits include deposits that originally mature within 3 months or more as at31 December 2013.

The effective interest rate on these bank deposits amounted to 5.1% in 2013 (2012 - 5.5%).

- 43 -


12 Cash and cash equivalents

2013 2012US$ US$

Cash on hand 7,205 5,161Bank current accounts 3,497,835 2,705,712

3,505,040 2,710,873

13 Fair value reserve

Below is the movement of the fair value reserve of available for sale financial assets:

2013 2012US$ US$

At beginning of the year 521,917 1,097,300Unrealised fair value gains (113,843) (575,383)Realised loss on sale of financial assets (28,781) -Impairment on financial assets (300,000) -

At end of year 79,293 521,917

14 Share capital

At 31 December 2013, the share capital is comprised of 75,000,000 authorised and fully paidshares with a par value of US$ 1 each (2012- 75,000,000 authorised and fully paid shareswith a par value of US$ 1 each).

An extraordinary general assembly of shareholders held on 21 May 2013 approved anamendment to article 18 of the Company's By Laws. This amendment grants the Board ofDirectors the power to purchase the Company's own shares from a specific shareholder undercertain circumstances. This concerns situations where the status of the shareholder isprejudicial to the interests of the Company as a result of an international sanctions regimeapplying to the shareholder or the country in which he is based. Pursuant to the aboveamended article, the board of directors took the decision on 27 June 2013 to acquire6,935,440 shares representing 9.24% of the share capital and held by one of the shareholderswho is subject to such sanctions. An independent expert appointed by the board of directorsestimated the fair value of these shares at US$ 7.37 million. This amount was reflected onthe balance sheet as treasury shares, deducted from shareholders' equity and as an obligationpayable to the shareholder.

On 17 July 2013, the shareholder advised the Company that they contested (i) the validity ofthe amendment to the Company's By Laws and (ii) the board's decision to acquire theirshares in the Company. The shareholder further intimated that they might pursue the case bytaking legal action in case the board's decision was not nullified. To date, no lawsuit hasbeen served on the Company.

- 44 -


15 Legal reserve

According to Article 60 of the Company's by-laws, 10% of the annual net profit should betransferred to a legal reserve until such reserve reaches the Company's capital. This reserve isnot available for distribution to shareholders.

16 Dividends paid

On 21 May 2013 (2011 – 19 May 2012) the general assembly of shareholders approved thedistribution of US$ 6 million to shareholders (2012 – US$ 3.75 million).

17 Insurance contracts and reinsurance assets2013 2012US$ US$

Insurance contractsOutstanding claims 93,005,056 78,091,759Unearned premiums provision 37,570,168 31,443,684Claims incurred but not reported 1,878,976 1,530,000

Total insurance liabilities, gross 132,454,200 111,065,443

Recoverable from reinsurersOutstanding claims 17,206,006 14,926,153Unearned premiums provision 8,437,347 6,618,872

Total reinsurers' share of insurance liabilities 25,643,353 21,545,025

NetOutstanding claims 75,799,050 63,165,606Unearned premiums provision 29,132,821 24,824,812Claims incurred but not reported 1,878,976 1,530,000

Total insurance liabilities, net 106,810,847 89,520,418

17.1 Development claims tables

The development of insurance liabilities provides a measure of the Company's ability toestimate the ultimate value of claims. The top half of each table below illustrates how theCompany's estimate of total claims outstanding for each underwriting year has changed atsuccessive year-ends. The bottom half of the tables reconciles the cumulative claims to theamount disclosed in the balance sheet. An underwriting-year basis is considered to be mostappropriate for the business written by the Company.

- 45 -


17Insurancecontractsandreinsuranceassets(continued)

17.1

Developmentclaimstables(continued)

Underwritingyear

<2005

2006

2007

2008

2009

2010

2011

2012

2013

Total

InUS$'000

Estimateofultimateclaimscosts:

-atendofaccidentyear

19,733

29,706

35,760

26,797

23,358

28,973

31,463

35,721

231,511

-oneyearlater

32,829

44,376

51,845

40,604

34,473

37,024

49,379

-290,530

-twoyearslater

34,595

46,920

54,421

41,074

36,263

41,790

--

255,063

-threeyearslater

31,970

47,736

53,601

40,710

36,649

--

-210,666

-fouryearslater

36,026

47,067

53,108

38,962

--

--

175,163

-fiveyearslater

35,361

46,770

53,257

--

--

135,388

-sixyearslater

35,249

46,174

--

--

-81,423

-sevenyearslater

36,036

--

--

--

36,036

Currentestimateofcumulativeclaims

6,117

36,036

46,174

53,257

38,962

36,649

41,790

49,379

35,721

344,085

Currentpaymenttodate

-(33,191)

(42,691)

(47,597)

(31,901)

(32,755)

(30,727)

(27,535)

(2,804)

(249,201)

6,117

2,845

3,483

5,660

7,061

3,894

11,063

21,844

32,917

94,884

Totalinsuranceliabilityatbalance

Sheetdate

94,884

- 46 -


18 Retirement benefit obligationIn accordance with the provisions of IAS 19, management has carried out an exercise toassess the present value of its retirement benefit obligations as at 31 December 2013 usingthe projected unit credit method.

Under this method, an assessment has been made of an employee's expected service lifewith the Company and the expected basic salary at the date of leaving the service.Management has assumed average increments in salary of 6% (2012 –6%). The expectedliability at the date of leaving the service has been discounted to its net present value using adiscount rate of 6.75% (2012 – 7.9%).

The movement in the provision recognised in the balance sheet is as follows:

2013 2012US$ US$

At beginning of year 190,006 201,000Provision charged to income statement (note 26) 175,924 25,000Utilised during the year (21,127) (35,994)

At end of year 344,803 190,006

19 Accounts payable

Current accounts with insurance companies,reinsurers and brokers 3,866,549 3,858,525NSSF and other taxes payable 205,121 189,702Deposits with reinsurance companies 11,908,099 10,875,508Accrued expenses 156,953 157,069Due to related parties (note 29) 10,619,790 2,093,232

26,756,512 17,174,036

20 Net insurance premium revenue

Insurance contracts

Insurance premium revenue 86,020,969 72,551,381Change in unearned premium provision (1,448,626) (5,948,728)

Insurance premium revenue 84,572,343 66,602,653

Insurance premium revenue ceded to reinsurers 19,535,931 15,491,455Change in reinsurance share of unearned premium provision (1,818,475) (2,354,685)

Insurance premium revenue ceded to reinsurers 17,717,456 13,136,770

Net insurance premium revenue 66,854,887 53,465,883

- 47 -


21 Investment income2013 2012US$ US$

Interest on bank deposits 3,126,013 3,275,567Interest on debt securities 4,529,316 4,359,231Dividend income 434,966 180,325Interest income on deposits with cedants 215,746 317,857Change in unrealised gain of financial assetsat fair value through profit and loss 421,350 182,239Realised gains from sale of available for sale 103,225 -Realised loss from disposal of held to maturity (143,206) -Impairment loss on available for sale financial assets (300,000) (300,000)Other income - 19,204

8,387,410 8,034,423

22 Reinsurance commission income

Reinsurance commission income 6,283,089 4,844,769Unearned reinsurance commissions at beginning of year 2,501,215 1,639,115Unearned reinsurance commissions at end of year (3,236,720) (2,501,215)

5,547,584 3,982,669

23 Insurance claims and loss adjustment expense

Gross paid claims 41,584,702 40,952,729Change in the provision for outstanding claims and IBNR 15,262,273 (211,482)

Insurance claims and loss adjustment expenses 56,846,975 40,741,247

Reinsurance share of paid claims 6,420,263 6,592,877Change in reinsurers' shareof outstanding claims and IBNR 2,279,853 (673,159)

Reinsurers' share of incurred claims 8,700,116 5,919,718

Insurance claims, net of reinsurance 48,146,859 34,821,529

- 48 -


24 Expenses for acquisition of insurance contracts

2013 2012US$ US$

Commissions paid 25,247,214 19,734,029Deferred acquisition costs at beginning of year 9,045,944 7,647,250Deferred acquisition costs at end of year (11,173,377) (9,045,944)

23,119,781 18,335,335

25 Expenses for administration and other expenses

Employee benefit expense (note 26) 2,748,735 2,537,284Depreciation (note 5,6) 75,890 60,898Utilities 176,187 155,695Professional fees 193,787 313,597Maintenance and repairs expenses 68,811 60,657Rent 95,462 95,000Other taxes 168,382 86,068Board of directors' attendance fees 344,616 350,452Board of directors' expenses 281,074 254,184Exchange loss 684,607 728,035Income from release of provision for bad debt (300,000) -Other administrative expenses 743,516 515,016

Total administrative expenses 5,281,067 5,156,886Less: Arab Re Pool expenses (591,327) (561,855)

4,689,740 4,595,031

26 Employee benefit expense

Salaries and wages 2,210,430 2,151,236National social security costs 296,534 271,714End of service indemnity costs (note 18) 175,924 25,000Other staff costs 65,847 89,334

2,748,735 2,537,284

27 Other operating income

Rent income 54,522 226,289Commission from Arab Re pool 860,663 517,322Other income 1,433 60,805Arab Re Pool expenses (note 25) (591,327) (561,855)

325,291 242,561

- 49 -


28 Income Tax

The income tax expense is comprised of the following:

2013 2012US$ US$

Tax on insurance income (see below) 175,479 140,320Other taxes 63,100 70,670

238,579 210,990

Taxable insurance income is comprised of the following:

Gross premiums written in Lebanon 8,684,391 7,964,033Commissions received on ceded premiums 719,986 378,756Other income 1,318,651 1,011,888

10,723,028 9,354,677Assumed profit at a weighted averagerate of 11% (2012 – 10%) 1,169,860 935,467Income tax rate 15% 15%

Income tax expense 175,479 140,320

Open tax years that are subject to examination and acceptance by the fiscal authoritiescomprise the financial years 2010 to 2013.

29 Related parties

The related parties are comprised of the Company's shareholders. The following transactionswere carried out with related parties:

2013 2012US$ US$

(a) Insurance contracts:Premiums accepted 13,563,585 11,968,282Premiums ceded (3,671,343) (2,716,610)Commission expense (3,645,436) (3,423,961)Claims paid (6,005,800) (6,046,857)Commission income on ceded premiums 1,346,408 958,694

(b) Key management compensation:Board of directors' attendance fees (note 25) 344,616 350,452

- 50 -


29 Related parties (continued)

Outstanding balances arising from reinsurance and other activities were as follows:

2013 2012US$ US$

Due to related parties (note 19) 10,619,790 2,093,232

Due from related parties (note 10) 1,904,738 1,154,828

Related parties consist mainly of shareholders.

30 Cash from operating activities

Cash flow from operating activities NoteProfit before tax 5,158,793 7,973,641Adjustments for:Depreciation 5, 6 75,890 60,898Amortisation on financial assets held to maturity (138,887) (18,202)Interest received 8,058,452 7,375,747Interest income (7,635,985) (7,435,888)Net (increase) decrease in available for salefinancial assets 1,620,021 (1,170,497)Net increase in held to maturity financial assets (2,472,849) (4,594,833)Net increase in financial asset at fair valuethrough profit or loss (421,351) (7,182,239)Net (increase) decrease in bank deposits withoriginal maturity of more than 3 months (5,375,401) 8,906,202Net increase in insurance contracts 21,388,757 5,944,428Net increase in reinsurance assets (4,098,328) (1,681,526)Net increase in deferred acquisition cost (2,127,433) (1,398,694)Net increase in insurance receivable (10,068,709) (3,919,567)Net increase (decrease) in retirement benefit obligation 154,797 (10,994)Net increase in accounts payable 2,210,798 1,084,056Net increase in unearned reinsurance commission 735,505 862,100

Net cash used in operations 7,064,070 4,794,632Income tax paid (203,420) (92,851)

Net cash provided from operating activities 6,860,650 4,701,781

- 51 -


Appendix A – Technical and non-technical income statement

2013US$

Insurance premium revenue 84,572,343Insurance premium ceded to reinsurers (17,717,456)

Net insurance premium revenue 66,854,887Investment income from technical operations 4,413,974Reinsurance commission income and profit sharing 5,547,584

Income from technical operations 76,816,445

Insurance claims and loss adjustment expenses (56,846,975)Insurance claims and loss adjustment expensesrecovered from reinsurers 8,700,116

Net insurance claims (48,146,859)

Expenses for acquisition of insurance contracts (23,119,781)Expenses for administration and other expensesallocated to technical operations (3,441,996)

Expenses from technical operations (74,708,636)

Net income from technical operations 2,107,809

Investment income from non technical operations 3,973,436Other operating income 325,291

Income from non technical operations 4,298,727Expenses for administration and other expensesallocated to non technical operations (1,247,743)

Net income from non technical operations 3,050,984

Income tax (238,579)

Net profit for the year 4,920,214

- 52 -

arab reinsurance company · mr. khaled el-hasan managing director & ceo gulf insurance company...

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