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COSMOS INSURANCE COMPANY PUBLIC LIMITED

CONSOLIDATED

FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2013


INDEX OF CONTENTS

PAGE

Board of Directors and Professional Advisers 1

Declaration by the Board of Directors 2

Independent Auditors’ report 3 - 4

Consolidated Income Statement 5

Consolidated Statement of Comprehensive Income 6

Consolidated Statement of Financial Position 7

Consolidated Statement of changes in Equity 8

Consolidated Statement of Cash Flow 9

Notes to the Consolidated Financial Statements 10 - 39

1


BOARD OF DIRECTORS AND PROFESSIONAL ADVISERS

BOARD OF DIRECTORS

Andreas P. Erotokritou Chairman

Michael K. Tyllis Executive Vice - Chairman

Andreas K. Tyllis Managing Director

Andreas Efthymiou Executive Director

Frixos Kitromilides Member

Nikolaos Plakides Member

Michael Skoufarides Member

Costas Agathocleous Member

SECRETARY Christiana A. Erotokritou

INDEPENDENT

AUDITORS MGI Gregoriou & Co Ltd

LEGAL ADVISERS Andreas P. Erotokritou & Co

ACTUARIES Lux Actuaries & Consultants (Cyprus) Ltd

BANKERS Bank of Cyprus Public Co. Ltd

Αlpha Bank Ltd

Universal Bank Public Ltd

Commercial Bank of Greece (Cyprus) Ltd

Societe Generale Cyprus Ltd

COOP Mesa Geitonias

Hellenic Bank Public Co. Ltd

REGISTERED OFFICE 46 Griva Digeni Avenue

Cosmos Tower

1080,Nicosia

2


DECLARATION BY THE BOARD OF DIRECTORS FOR THE YEAR ENDED 31 DECEMBER, 2013

In accordance with Article 9(7) of Law 190(I)/2007 on Transparency Requirements in relation to an issuer

whose securities are listed for trading on a regulated market, we the Members of the Board of Directors of the

Group Cosmos Insurance Company Public Limited for the year ended 31 December 2013 confirm that to the

best of our knowledge:

(a) The consolidated financial statements of the group for the financial year ended 31 December, 2013 have

been prepared in accordance with International Financial Reporting Standards, as adopted by the European

Union, and Article 9(4) of Law 190(I)/2007 and in general with the applicable Cyprus Legislation and give

a true and fair view of the consolidated assets and liabilities, the consolidated financial position and the

consolidated loss of the group and the companies included in the consolidated financial statements, as a

whole and

(b) the report of the Board of Directors includes a fair review of the developments and performance of the

operations as well as the position of the company and the undertaking included in the consolidated financial

statements, as a whole, together with the description of the principal risks and uncertainties that they are

facing.

Members of the Board of Directors

Andreas P. Erotokritou

Chairman

Michael K. Tyllis

Executive Vice - Chairman

Andreas K. Tyllis

Managing Director

Andreas Efthymiou

Executive Director

Frixos Kitromilides

Member

Nikolaos Plakides

Member

Michael Skoufarides

Member

Costas Agathocleous

Member

Nicosia, 24April, 2014

3


Independent Auditors’ Report

To the Members of


Report on the Consolidated Financial Statements and the separate financial statements

of Cosmos Insurance Company Public Limited

We have audited the accompanying consolidated financial statements of COSMOS INSURANCE

COMPANY PUBLIC LIMITED and its subsidiary (“the Group”), and the separate financial

statements of COSMOS INSURANCE COMPANY PUBLIC LIMITED (“the Company”), which

comprise the consolidated statement of financial position and the statement of financial position of the

Company as at 31 December 2013, and the consolidated income statement, the consolidated

statements of comprehensive income, changes in equity and cash flows and the income statement, the

statements of comprehensive income, changes in equity and cash flows of the Company for the year

then ended, and a summary of significant accounting policies and other explanatory information.

Board of Directors’ Responsibility for the financial statements

The Board of Directors is responsible for the preparation of consolidated and separate financial

statements of the Company that give a true and fair view in accordance with International Financial

Reporting Standards as adopted by the European Union and the requirements of the Cyprus

Companies Law, Cap. 113, and for such internal control as the Board of Directors determines is

necessary to enable the preparation of consolidated and separate financial statements that are free

from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated and separate financial statements of

the Company based on our audit. We conducted our audit in accordance with International Standards

on Auditing. Those Standards require that we comply with ethical requirements and plan and perform

the audit to obtain reasonable assurance whether the consolidated and separate financial statements

are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures

in the financial statements. The procedures selected depend on the auditor's judgment, including the

assessment of the risks of material misstatement of the consolidated and separate financial statements,

whether due to fraud or error. In making those risk assessments, the auditor considers internal control

relevant to the entity's preparation of consolidated and separate financial statements that give a true

and fair view in order to design audit procedures that are appropriate in the circumstances, but not for

the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit

also includes evaluating the appropriateness of accounting policies used and the reasonableness of

accounting estimates made by the Board of Directors, as well as evaluating the overall presentation of

the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis

for our audit opinion.

4

Opinion

In our opinion, the consolidated financial statements and the separate financial statements of the

Company give a true and fair view of the financial position of the Group and the Company as at 31

December 2013, and of their financial performance and their cash flows for the year then ended in

accordance with International Financial Reporting Standards as adopted by the European Union and

the requirements of the Cyprus Companies Law, Cap. 113.

Report on other legal requirements

Pursuant to the additional requirements of the Auditors and Statutory Audits of Annual and

Consolidated Accounts Law of 2009, we report the following:

We have obtained all the information and explanations we considered necessary for the purposes

of our audit.

In our opinion, proper books of account have been kept by the Company, so far as appears from

our examination of those books.

The consolidated and the separate financial statements are in agreement with the books of account.

In our opinion and to the best of our information and according to the explanations given to us, the

consolidated and the separate financial statements give the information required by the Cyprus

Companies Law, Cap. 113, in the manner so required.

In our opinion, the information given in the report of the Board of Directors is consistent with the

consolidated and the separate financial statements.

Pursuant to the requirements of the directive DI190-2007-04 of the Cyprus Securities and Exchange

Commission, we report that a corporate governance statement has been made for the information

relating to paragraphs (a), (b), (c), (f) and (g) of article 5 of the said Directive, and it forms a special

part of the Report of the Board of Directors.

Other Matter

This report, including the opinion, has been prepared for and only for the Company’s members as a

body in accordance with Section 34 of the Auditors and Statutory Audits of Annual and Consolidated

Accounts Law of 2009 and 2013 and for no other purpose We do not, in giving this opinion, accept or

assume responsibility for any other purpose or to any other person to whose knowledge this report

may come to.

Gregoris N. Petsas

Certified Public Accountant and Registered Auditor

for and on behalf of

MGI Gregoriou and Co Ltd

Certified Public Accountants and Registered Auditors

7 Florinis street, 1065 Nicosia,

24 April, 2014

5


CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER, 2013

Notes 2013

€

2012

€

Insurance Income

Gross earned premium 22.304.551 25.017.213

Reinsurers’ share on gross earned premium (14.539.860) (17.251.243)

Net earned premium 5 7.764.691 7.765.970

Policy fees and other income 1.450.505 1.637.202

Reinsurance Commissions 5.525.265 7.124.166

Total Other Insurance Income 6.975.770 8.761.368

Total Insurance Income 14.740.461 16.527.338

Expenses from Insurance Operations

Claims 7 (5.981.116) (6.710.323)

Commissions payable and other selling expenses (4.682.975) (5.479.156)

Other operating and administrating expenses from insurance operations (3.027.033) (3.422.878)

Total operating and administrating expenses from insurance operations (13.691.124) (15.612.357)

Movement in Unexpired Risk Reserve 23.815 (23.815)

Technical Insurance Result 5 1.073.152 891.166

Investment Income 10 264.962 328.825

Insurance result from operations 1.338.114 1.219.991

Loss from investment portfolio 6 (58.420) (727.601)

Loss from revaluation on investment property 21 (403.055) (305.555)

(461.475) (1.033.156)

Other income 11 153.302 369.122

Income from Cyprus hire risk pool operations 12 156.451 88.777

Other expenses 13 (930.695) (1.095.456)

Finance expenses 8 (136.185) (172.922)

Administration expenses of subsidiary company (13.428) (10.695)

Profit / (loss) before taxation 9 106.084 (634.339)

Taxation 14 (114.081) (33.778)

Loss for the year (7.997) (668.117)

Loss for the year attributable to:-

Equity holders of the parent (8.221) (670.189)

Minority shareholders 224 2.072

(7.997) (668.117)

Basic and fully diluted loss earnings per share (cent) 15 (0,05) (3,73)

The notes on pages 10 to 39 form part of the consolidated financial statements.

6


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER, 2013

2013

€

2012

€


Revaluation of the investment property (310.700) 53.640

Deferred taxation on the revaluation 37.600 6.703

Total Comprehensive expense for the year (281.321) (609.846)


7


CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER, 2013

Notes

2013

€

2012

€

ASSETS

Property, plant and equipment 16 4.997.445 5.499.861

Intangible Asset 17 388.449 443.750

Investment property 21 2.960.945 3.364.000

Long-term receivables 19 820.000 920.000

Total non-current assets 9.166.839 10.227.611

Trade and other receivables 18 8.443.247 9.970.843

Investments at fair value through profit or loss 20 2.104.282 1.310.927

Taxation 14 60.500 -

Deferred acquisition expenditure 26 2.324.487 2.686.795

Reinsurers’ share on technical reserves 24, 26 11.920.997 13.344.258

Cash and cash equivalent 2.593.314 3.715.730

Total current assets 27.446.827 31.028.553

Total assets 36.613.666 41.256.164

OWNERS’ EQUITY

Share capital 25 5.575.350 5.575.350

Share premium 163.984 163.984

Revaluation Reserve 2.123.309 2.396.409

Retained Earnings (1.261.828) (1.230.479)

Total of owners’ equity 6.600.815 6.905.264

LIABILITIES

Deferred taxation 14 444.453 486.740

Long-term loans 27 - 822.314

Long-term insurance liabilities 23 3.160.041 2.250.000

Total non-current liabilities 3.604.494 3.559.054

Trade and other payables 22 753.839 1.384.032

Short-term insurance liabilities 23 242.662 2.612.633

Outstanding claims 24 14.805.174 15.004.210

Unearned premium reserve 26 7.951.324 9.508.028

Unexpired Risk Reserve - 23.815

Taxation 14 - 7.576

Reinsurance share on technical reserve 26 2.075.225 1.986.263

Short-term loans 27 423.455 265.289

Bank overdraft 28 156.678 -

Total current liabilities 26.408.357 30.791.846

Total liabilities 30.012.851 34.350.900

Total owners ‘equity and liabilities 36.613.666 41.256.164

These financial statements have been approved by the Board of Directors on the 24th

April 2014.

.................................................. .................................................. ..................................................

Andreas P. Erotokritou Michael K. Tyllis Andreas K. Tyllis

Chairman Executive Vice-Chairman Managing Director


8


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER, 2013

Share

Capital

€

Share

Premium

€

Revaluation

Reserve

€

Retained

Earnings

€

Total

€

Balance 1 January, 2012 5.575.350 163.984 2.336.066 (511.012) 7.564.388

Total Comprehensive expenses - - 60.343 (670.189) (609.846) Payment of special defense

contribution on deemed distribution

of dividend

-

-

-

(49.278)

(49.278)

Balance 31 December, 2012 5.575.350 163.984 2.396.409 (1.230.479) 6.905.264

Balance 1 January, 2013 5.575.350 163.984 2.396.409 (1.230.479) 6.905.264 Total Comprehensive expenses - - (273.100) (8.221) (281.321)

Payment of special defense

contribution on deemed distribution of dividend

-

-

-

(23.128)

(23.128)

Balance 31 December, 2013 5.575.350 163.984 2.123.309 (1.261.828) 6.600.815

Companies which do not distribute 70% of their profits after tax, as defined by the relevant tax law, within two

years after the end of the relevant tax year, will be deemed to have distributed as dividends 70% of these profits.

Special contribution for defence at 20% for the tax years 2012 and 2013 and 17% for 2014 and thereafter (up to

30 August 2012 the rate was 15% and was increased to 17% for the period thereafter to 31 December 2012) will

be payable on such deemed dividends to the extent that the shareholders (companies and individuals) are Cyprus

tax residents. The amount of deemed distribution is reduced by any actual dividends paid out of the profits of

the relevant year at any time. This special contribution for defence is payable by the Company for the account of

the shareholders.


9


CONSOLIDATED STATEMENT OF CASH FLOW FOR THE YEAR ENDED 31 DECEMBER, 2013

Notes

2013

€

2012

€

Cash flow from operating activities


Adjustments for:-

Depreciation 431.461 458.387

Amortisation of goodwill 36.286 36.286

Profit on the revaluation of investments and other securities (37.312) (120)

Loss from the revaluation of investment property 403.055 305.555

Non- controlling interest amount written – off as non-recoverable (224) (2.072)

Restoration of provision for loan receivable - (226.297)

Profit on sale of investments and other securities (2.133) (79.089)

Loss on sale of property, plant and equipment 4.376 19.870

Profit on sale of property, plant and equipment - (1.160)

Loss on sale of investments and other securities 72.902 31.746

Loss on the revaluation of investments and other securities 23.993 770.520

Interest payable 136.185 172.922

Interest receivable (264.900) (328.825)

Dividends receivable (62) -

Taxation 114.081 33.778

Decrease in unearned premium reserve (1.556.704) (1.085.581)

Cash flows used in operations before the changes in the working capital (646.993) (562.197)

Decrease in trade and other receivables

1.527.596

996.606

Long – term receivables 100.000 -

Decrease in trade and other payables (630.194) (392.707)

Loan receivables - 565.000

Decrease in deferred acquisition expenditure 362.308 318.972

Decrease in reinsurers’ share in technical reserves 1.512.223 1.422.445

Decrease on outstanding claims (199.036) (1.138.809)

Unexpired risk reserve (23.815) 23.815

Cash flows from operations 2.002.089 1.233.125

Taxation paid (186.844) (10.321)

Payment of special defense contribution on deemed distribution of dividend (23.128) (49.278)

Net cash flows from operating activities 1.792.117 1.173.526

Cash flows from investing activities

Purchase of property, plant and equipment (100.838) (82.503)

Purchase of intangible assets (129.468) (164.020)

Purchase of investments and other securities (966.914) -

Proceeds from sale of investments 116.110 358.227

Proceeds from sale of property, plant and equipment 5.200 12.500

Purchase of investment property - (555.555)

Interest received 264.900 328.825

Dividends received 62 -

Net cash flows used in investing activities (810.948) (102.526)

Cash flows from financing activities

Loan of insurance liabilities (1.459.930) (1.048.623)

Interest paid (136.185) (172.922)

Receipts from loans 200.000 -

Payments for loans (864.148) (316.244)

Net cash flows used in financing activities (2.260.263) (1.537.789)

Net decrease in cash and cash equivalent (1.279.094) (466.789)

Cash and cash equivalents at the beginning of the year 28 3.715.730 4.182.519

Cash and cash equivalents at the end of the year 28 2.436.636 3.715.730


10


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER, 2013

1. INCORPORATION AND PRINCIPAL ACTIVITY

The company COSMOS INSURANCE COMPANY PUBLIC LIMITED was incorporated in Cyprus on the 17th

October, 1981 as a limited liability private company and on the 6th

December, 1999 became a public company,

in accordance with the Cyprus Company Law Cap. 113. The registered office of the company is located at Griva

Digeni 46 Avenue, Cosmos Tower, 1080 Nicosia. On the 12th

July, 2004 according to a special resolution the

name of the company was changed to Cosmos Insurance Company Public Limited in accordance with the Law

70 (1) 2003.

Principal Activity

The principal activity of the company is the provision of general business insurance services. All the Group’s

activities are carried out in Cyprus and remain unchanged from previous year.

On the 7th

of November 2001 a Cyprus company was incorporated in accordance with the provisions of the

Companies Law, Cap. 113 under the name “Cosmos International Life Insurance Ltd” in order to provide life

assurance business services when the appropriate permits will be secured from the proper supervisory

authorities. On the 12th

of July, 2005 the name of the company changed to Cosmos International Life Insurance

Agencies Ltd in order to provide life assurance intermediary business and for this reason the appropriate licence

was granted from the relevant authorities.

2. BASIS OF PRESENTATION

(a) Statement of going concern basis

The consolidated financial statements have been prepared on a going concern basis. Despite recent

developments in the economic environment of Cyprus as described in note 2(g) of the financial

statements, the Group's management believes that the parent company and the group have the ability to

continue operating as a going concern.

(b) Statement of compliance

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

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

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

113, the Law on Insurance Services and other Related Issues of 2002-2013, (“Laws”) the Cyprus Stock

Exchange Laws and Regulations and in accordance with the provisions on Transparency (Securities for

Trading on Regulated Market) Law.

(c) Basis of measurement

The financial statements have been prepared under the historical cost convention except for property,

plant and equipment, investment property and investments at fair value through profit or loss, which are

presented at their fair values as at the end of the current financial year. The fair value measurement

method is presented in the following notes.

(d) Adoption of new and revised International Financial Reporting Standards and Interpretations

As from 1 January 2013, the Company adopted all changes to International Financial Reporting Standards

(IFRSs) which are relevant to its operations. This adoption did not have a material effect on the financial

statements of the Group and the Company.

The following Standards, Amendments to Standards and Interpretations have been issued but are not yet

effective for annual periods beginning on 1 January 2013. Those which may be relevant to the Company

are set out below. The Group and the Company does not plan to adopt these Standards early.

11



2. BASIS OF PRESENTATION (continued)

(d) Adoption of new and revised International Financial Reporting Standards and Interpretations

(continued)

(i) Standards and Interpretations adopted by the EU

IFRS 10 ''Consolidated Financial Statements'' (effective the latest, as from the commencement date of its

first financial year starting on or after 1 January 2014).

IFRS 11 ''Joint Arrangements'' (effective the latest, as from the commencement date of its first financial

year starting on or after 1 January 2014).

IFRS 12 ''Disclosure of Interests in Other Entities'' (effective the latest, as from the commencement date

of its first financial year starting on or after 1 January 2014).

Investment Entities - Amendments to IFRS 10, 12 and IAS 27 (effective the latest, as from the

commencement date of its first financial year starting on or after 1 January 2014).

Transition Guidance - Amendments to IFRS 10, 11 and 12 (effective the latest, as from the


IAS 27 (Revised) ''Separate Financial Statements'' (effective the latest, as from the commencement date of

its first financial year starting on or after 1 January 2014).

IAS 28 (Revised) ''Investments in Associates and Joint ventures'' (effective the latest, as from the


IAS 32 (Amendments) ''Offsetting Financial Assets and Financial Liabilities'' (effective for annual periods

beginning on or after 1 January 2014).

IAS 36 (Amendments) ''Recoverable Amount Disclosures for Non-Financial Assets'' (effective for annual

periods beginning on or after 1 January 2014).

IAS 39 (Amendments) ''Novation of Derivatives and Continuation of Hedge Accounting'' (effective for

annual periods beginning on or after 1 January 2014).

(ii) Standards and Interpretations not adopted by the EU

IFRS 7 (Amendments) ''Financial Instruments: Disclosures'' – ''Disclosures on transition to IFRS 9''

(effective for annual periods beginning on or after 1 January 2015).

IFRS 9 ''Financial Instruments'' (effective for annual periods beginning on or after 1 January 2015).

IFRS 14 ''Regulatory Deferral Accounts'' (effective for annual periods beginning on or after 1 January

2016).

IAS 19 (Amendments) ''Defined Benefit Plans: Employee Contributions'' (effective for annual periods

beginning on or after 1 July 2014).

Improvements to IFRSs 2010-2012 (effective for annual periods beginning on or after 1 July 2014).

Improvements to IFRSs 2011-2013 (effective for annual periods beginning on or after 1 July 2014).

IFRIC 21 ''Bank Levies'' (effective for annual periods beginning on or after 1 January 2014).

(e) Use of estimates and judgments

The preparation of financial statements in conformity with International Financial Reporting Standards

requires from Management to make judgments, estimates and assumptions that affect the application of

accounting policies and the reported amounts of assets and liabilities, income and expenses. The estimates

and underlying assumptions are based on historical experience and various other factors that are believed

to be reasonable under the circumstances. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting

estimates are recognised in the period in which the estimates are revised if the revision affects only that

period, or the period of revision and future periods if the revision affects both current and future periods.

Specifically, information for important estimates, uncertainties and significant judgment for the

implementation of accounting policies that have a significant influence on the amounts recognised in the

financial statements are presented in the following notes:

- Property, plant and equipment – property valuation

- Investment property – property valuation

- Financial Instruments – financial instruments valuation

- Investments – investments valuation

.

12




(f) Functional and presentation currency

The Group’s and the Company’s financial statements are for the year ended 31 December 2013 and are

presented in Euro (€) which is the official currency of the Republic of Cyprus and in the case of the Group

and the Company is also its functional currency that presents best the substance of its economic

transactions and activities

(g) Operating environment of the Company and the Group

The Cyprus economy has been adversely affected from the crisis in the Cyprus banking system in

conjunction with the inability of the Republic of Cyprus to borrow from international markets. As a

result, the Republic of Cyprus entered into negotiations with the European Commission, the European

Central Bank and the International Monetary Fund (the “Troika”), for financial support, which resulted

into an agreement and the Eurogroup decision of 25 March 2013. The decision included the restructuring

of the two largest banks in Cyprus through “bail in”. During 2013 the Cyprus economy contracted further

with a decrease in the Gross Domestic Product.

Following the positive outcome of the first and second quarterly reviews of Cyprus’s economic

programme by the European Commission, the European Central Bank and the International Monetary

Fund during 2013, the Eurogroup endorsed the disbursement of the scheduled tranches of financial

assistance to Cyprus.

The uncertain economic conditions in Cyprus, the unavailability of financing, the restructuring of the

banking sector through “bail in” for Laiki Bank and Bank of Cyprus, and the imposition of capital

controls together with the current situation of the banking system and the continuing overall economic

recession, could affect

(1) the ability of the Group to obtain new borrowings or re-finance its existing borrowings at terms and

conditions similar to those applied to earlier transactions,

(2) the ability of the Group's trade and other debtors to repay the amounts due to the Company

(3) the ability of the Group to generate sufficient turnover and offer its services to customers, and

(4) the cash flow forecasts of the Group’s management in relation to the impairment assessment for

financial and non-financial assets.

The economic conditions described above, together with the impact of the Eurogroup decision of 25

March 2013 on Cyprus, may have an adverse impact on the Company’s debtors (inability to meet their

obligations towards the Company), suppliers (inability to continue trading), real estate valuation, bankers

(inability to provide adequate finance), and revenue (decreased demand for the Company’s products or

services due to decreased purchasing power of consumers).

The Group’s management has assessed:

(1) Whether any impairment allowances are deemed necessary for the Company’s financial assets

carried at amortized cost by considering the economic situation and outlook at the end of the reporting

period. Impairment of trade receivables is determined using the “incurred loss” model required by

International Accounting Standard 39 “Financial Instruments: Recognition and Measurement”. This

standard requires recognition of impairment losses for receivables that arose from past events and

prohibits recognition of impairment losses that could arise from future events, no matter how likely those

future events are.

(2) Whether the net realizable value for the Company’s inventory exceeds cost. [Note - additional

disclosures may include:

(i) Where net realizable value is below cost, the excess should be charged to the profit or loss for the year,

or

(ii) The demand for many types of real estate properties has been significantly affected and transactions

are less frequent, therefore the estimated selling price is highly judgmental.

(3) The ability of the Company to continue as a going concern.

13




(g) Operating environment of the Company and the Group (continued)

The Group’s management is unable to predict all developments which could have an impact on the

Cyprus economy and consequently, what effect, if any, they could have on the future financial

performance, cash flows and financial position of the Group.

On the basis of the evaluation performed, Group’s management has concluded that no provisions or

impairment charges are necessary for the financial statements. In addition, the Group’s management

believes that it is taking all the necessary measures to maintain the viability of the Group and the

development of its business in the current business and economic environment.

If the Group is unable to continue its day to day operations will need to make the appropriate adjustments

for impairment of assets to realizable value and to make provision for any additional liabilities that may

arise.

3. SIGNIFICANT ACCOUNTING POLICIES

Significant accounting policies have been applied consistently to all years presented in the consolidated

financial statements.

Basis of consolidation

The consolidated financial statements consist of the financial statements of Cosmos Insurance Company Public

Ltd and its subsidiary company ‘Cosmos International Life Insurance Agencies Ltd’. The acquisition of the

subsidiary company is accounted for based on the acquisition method.

The subsidiary’s financial statements are consolidated from the date of incorporation until the date of its

disposal. The same accounting policies have been applied for both the subsidiary’s and the parent company’s

financial statements.

Inter – group transactions and balances are excluded from the consolidated financial statements.

Gross earned premiums The figures shown in the accounts are before the deduction of reinsurance expenses.

Basis of results The results are determined after accounting for unearned premium income, deferred expenditure and

outstanding claims. Insurance premium and claims are shown after payments or recoveries from the reinsurers.

Unearned premium is the proportion of the annual recorded premium relating to risk periods from 1 January

next year until the policy expiry date. These are estimated on a time proportion basis.

The deferred acquisition expenditure as shown on the statement of financial position represents the proportion

of the commission, administration and selling expenses and the proportion of the reinsurers on the gross

premium which relates to the gross unearned premium.

Income from investments

(i) Dividends Receivable

Dividends from investments are recognised in the income statement on the date that the Group has a right to

their collection (at which the value is negotiated without dividend).

(ii) Interest received from investments

Interests received from investments relate to interest on bonds and are recognised on an accruals basis.

(iii) Interest received on overdue balance of agents

Interests received on overdue balance of agents relates to interest arising from the overdue balance base on

their agreement.

14


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (continued) FOR THE YEAR ENDED 31 DECEMBER, 2013

3. SIGNIFICANT ACCOUNTING POLICIES – (continued)

Fee and commission income

Reinsurance commission is recognised on a basis that is consistent with the recognition of the costs incurred on

the acquisition of the underlying insurance contracts. Profit commission in respect of reinsurance contracts is

recognised on an accruals basis.

Income from Cyprus Hire Risk Pool operations

The Company’s share of profit or loss from the Cyprus Hire Risk Pool is recognized based on the Company’s

total motor premiums compared to the total of the premiums of this market sector and is recognised in the

income statement based on the annual financial statements of the Cyprus Hire Risk Pool.

Insurance business expenses

Insurance business expenses consist of commissions and other expenses relating to insurance operations. The

insurance business expenses that are presented in the income statement consist of expenses that were paid or

accounted for during the year, plus the deferred acquisition costs brought forward minus the deferred

acquisition costs carried forward.

Finance expenses

Finance expenses include bank interest payable, finance costs, other interest payable, income tax interest and

special deference contribution. Interest is recognised in the income statement on an accrual basis.

(Loss)/Profit per share

The Group and the Company disclose basic loss/profit per share of ordinary shares. Basic loss/profit per share

is calculated by dividing the loss/profit for the year attributable to equity holders of the Company by the

average number of issued share capital for the year.

Reinsurance premiums

The Company enters into reinsurance contracts in the normal course of business in order to limit the potential

losses arising from certain exposures. Assets, liabilities, income and expenses arising from ceded reinsurance

contracts are presented separately from the relevant assets, liabilities, income and expenses from the relevant

insurance contracts as the reinsurance laws do not discharge the Company from its current liabilities to the

owners of the contracts.

The rights of contracts that could result into significant transfer of insurance risk are classified as reinsurance

assets. Rights of contracts that do not transfer significant insurance risk are classified as financial instruments.

Reinsurance premiums of ceded reinsurance are recognised as expenditure based on the recognition basis of the

relevant insurance contracts. For general business, reinsurance premiums are expensed during the period that

the reinsurance cover is provided for based on the expected structure of the insured risk. The deferred part of

the ceded reinsurance premiums is included in reinsurance assets.

The net amount paid to the reinsurer at the beginning of the contract is lower than the reinsurance asset

recognized by the Company in relation to its rights from such contracts. Any difference between the premium

owed to the reinsurer and the reinsurance asset that is recognised, is included in the income statement during

the period that the reinsurance premium becomes due.

The amount recognised as reinsurance asset is calculated so as to be in line with the calculation of the

provisions of the related insurance contracts.

Reimbursements due to reinsurance companies in relation to paid claims are included in reinsurance assets.

These are classified in receivables and are shown as insurance and other receivables in the statement of

financial position.

Reinsurance assets are assessed for impairment at each statement of financial position date. An asset is

considered to be impaired if objective evidence indicates that due to certain events the Company will not be in

a position to recover the amounts due and when an event will have significant influence in the amounts the

Company will receive by the Reinsurer.

15




Foreign currency transactions

Transactions in foreign currencies are converted and recorded into Euro using the rate of exchange ruling at the

date of the transaction. Monetary foreign currency assets and liabilities are translated to Euro using the rate of

exchange ruling at the balance sheet date. The exchange differences, which arise on translation, are recognised

in the income statement and are shown separately when considered material. Non-monetary foreign currency

assets and liabilities which are shown at cost are translated to Euro using the rate of exchange ruling at the

transaction date.

Employees’ retirement schemes

No fixed pension scheme exists beyond the provident fund under which the group contributes a fixed

contribution equal to 5% of the gross salary of each employee. This expense is debited to the consolidated

income statement.

Taxation

Taxation is recognised in the income statement and consists of provision for taxes charged on the annual

taxable profits on the basis of the legislation and tax rates applicable in Cyprus as well as deferred tax and tax

from previous years. Taxation is recognised in the income statement except when it relates to assets and

liabilities that are recognised directly in equity, in that case it is transferred to equity.

Deferred taxation

A deferred tax provision is made using the tax rates which will prevail when taxes will be payable as a result of

timing differences which might occur due to the different treatment of certain expenditure and income under

accounting and taxation regulations and also for the revaluation of certain fixed assets. Deferred tax which is a

result from the revaluation of fixed assets is transferred to revaluation reserve. Debit balances which occur

from deductible timing differences are recognised only when it is considered probable that future profits will

occur.

Property, plant and equipment Land and buildings are shown at fair value, based on valuations by external independent surveyor, less

subsequent depreciation. Any accumulated depreciation at the date of revaluation is eliminated against the gross

carrying amount of the asset and the net amount is restated to the revalued amount of the asset. Revaluations are

carried out on fixed intervals to ensure that the carrying amount does not differ materially from the fair value at

the balance sheet date. All other property, plant and equipment are stated at historical cost less depreciation.

Capital expenditure for material improvements to the property, plant and equipment which increases the value

and is expected to give additional economic benefits to the company from those which were initially estimated

are capitalized and depreciated based on the percentages stated below.

Increases in the carrying amount arising on revaluation of land and buildings are credited to the revaluation

reserve in equity. Decreases that offset previous increase of the same asset are charged against those reserves.

All other decreases are charged to the income statement. The depreciation is calculated to write off the cost or

the revalued value less any residual value of the property, plant and equipment on a straight line basis over the

expected useful lives of the assets concerned.

The annual rates used for this purpose are:

Buildings 3%

Furniture and fittings and computer hardware 10-20%

Motor vehicles 15%

Land is not depreciated.

In case of disposal of a property, plant and equipment, the difference between the selling price and the net book

value is charged directly to the income statement in the year of disposal. If the disposal relates to an asset which

is shown at a revalued amount, any revaluation surplus which was previously credited to the revaluation reserve

is transferred to retained earnings.

16




Intangible assets

Application software

Application software is shown at cost less accumulated depreciation. Depreciation is calculated based on the

straight line method taking into consideration their estimated useful economic lives. The annual depreciation

percentage is 33 1/3 %.

Goodwill from acquisition of insurance portfolios

The consideration paid for the acquisition of an insurance portfolio represents the fair value of the portfolio of

insurance contracts acquired and accounted for as goodwill. The goodwill from acquisition of insurance

portfolios is shown at cost less the accumulated depreciation and the impairment loss. The goodwill write-off in

the consolidated income statement is calculated based on the straight line method over the useful life of

goodwill.

Investment property

Investment property acquired as a long term investment for capital appreciation or for leasing to generate

income and is not intended for own use by the company is classified under the category of investment property.

Such property is presented at the balance sheet date at fair value. Investment property additions are recorded at

original cost and are revalued at each balance sheet date at fair value based on their market value. The profit or

loss from sale or revaluation of investment property is transferred to the consolidated income statement in the

year which arises.

Investments

The Group recognises its financial assets that are made up of investments, in the following categories. The

classification of investments depends on the purpose for which they were purchased. The Board of Directors is

responsible for the classification of investments upon initial recognition and any reclassification is made at the

statement of financial position date.

Assets at fair value through profit or loss

The Group and the Company recognize the financial instruments that are investments in variable performance

in the following categories. These data are classified as current assets.

Assets held for trading

Assets held for trading consist of those values, which were acquired for the purpose of generating a profit from

short-term fluctuations in prices, or are part of a portfolio for which there is evidence of a recent actual pattern

of short-term profit making.

Held-to-maturity investments

Held-to-maturity investments are those with fixed or determinable payments and fixed maturities and which the

Group has the intention and ability to hold to maturity. After initial measurement, held-to-maturity investments

are subsequently measured at amortised cost using the effective interest rate method. Amortised cost is

calculated by taking into account any discount or premium on acquisition and fees that are an integral part of

the effective interest rate. The amortisation is included in ‘Investment income’ in the consolidated income

statement. Losses arising from impairment of such investments are recognised in ‘Technical Insurance Result’

in the consolidated income statement.

For listed values the fair value is considered to be the closing price at the Stock Exchanges at which these

investments are traded. For unlisted investments, the fair value is determined by the Board of Directors based

on recognised valuation models as applicable to the conditions of each issuers. When the fair value cannot be

reliably estimated, the cost is considered to be their fair value.

All purchases and sales of investments are recognised at their transaction date, which is the date that the Group

is committed to purchase or sell the investment. On disposal of investments, the difference between the net

disposal proceeds and their net book value as shown in the accounts is transferred to the income statement.

17




Associated companies

Associated companies are companies, on which the company exercises significant influence, but not control on

their financial and operating policy. The consolidated financial statements include the total recognized profit

and losses of the associated companies which account to the company using the equity method since the date

that significant influence is exercised until the date this influence ceased. When the share of losses of the

associated company exceed the fair value of net assets, liabilities and contingent liabilities of the associated

company, the carrying value reduces to zero and no other losses are recognised, except if the company has legal

on constructive obligation to make payments on behalf of the associated companies.

Trade and other receivables

Trade and other receivables are shown after deducting provision for doubtful debts. The group provides for bad

and doubtful debts which might arise during the ordinary course of business on a yearly basis based on the

amounts received or receivable.

Cash and cash equivalents Cash and cash equivalents consist of cash in hand and balance with banks.

Comparative figures The comparative figures are adjusted in order to be in line with the presentation of the current year figures.

Impairment in the value of assets

At each balance sheet date the group examines whether there are any indications that suggest a diminution in

value of the assets with the exception of items that the accounting policy in relation to the diminution in value is

stated elsewhere. In case of such indications the company carries out an estimation of the recoverable amount of

the specific assets.

If the recoverable amount is lower than the net book value of a specific asset then the net book value is

decreased to the recoverable amount. This diminution is recognised as an expense in the income statement of the

year.

The diminution in value of assets is reversed if the next increase in the amount receivable could be related

clearly to a fact which occurred since the diminution has been recognised. The diminution in value of all assets

is reversed if a change occurred in the calculations of the recoverable amount.

The diminution is reversed in the case where the carrying value of an asset is not greater than the carrying value

calculated less deprecation or amortisation, if the diminution in value had not been recognised. The cancellation

of the diminution in value is recognised to the revaluation reserve or to the income statement with the reversal

of the accounting entries made during the initial recognition of the diminution in value.

Unexpired Risk Reserve (URR) The unexpired risk reserve is computed with the ‘‘Claim Ratio’’.

Revaluation reserve

Surpluses from revaluation of property, plant and equipment are credited to the revaluation reserve. Deficits

from revaluation of property, plant and equipment are debited to the revaluation reserve. In cases whereby a

deficit is not covered from accumulated surplus in the revaluation reserve for a specific property, plant and

equipment then the deficit is written off in the income statement.

18

COSMOS INSURANCE COMPANY PUBLIC LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (continued) FOR THE YEAR ENDED 31 DECEMBER, 2013

4. INSURANCE AND FINANCIAL RISK MANAGEMENT

Insurance risk

Insurance risk relates to the changes in the frequency and severity of claims, the uncertainty of development of

claims incurred and the frequency of catastrophic events.

Risk management objectives and policies for mitigating insurance risk

The Company’s management of insurance and financial risk is a critical aspect of the business. For a

significant proportion of the Company’s Life Insurance contracts, the cash flows are linked, directly or

indirectly, to the performance of the assets that support those contracts. For General Insurance contracts, the

objective is to select assets with a duration and maturity value which matches the expected cash flows from the

claims on those portfolios. The Company sets and monitors its asset and liability position with the objective of

ensuring that the Company can always meet its obligations without undue cost, and in accordance with the

Company internal and regulatory capital requirements.

The primary insurance activity carried out by the Company, assumes the risk of loss from persons or

organisations that are directly subject to the risk. Such risks may relate to property, liability, life, accident,

health, or other perils that may arise from an insurable event. As such, the Company is exposed to the

uncertainty surrounding the timing, frequency and severity of claims under the contracts. The Company also

has exposure to market risk through its insurance and investment activities.

Risk management objectives and policies for mitigating insurance risk (continued)

The Company manages its insurance risk through underwriting limits, approval procedures for transactions that

involve new products or that exceed set limits, pricing guidelines, centralised management of reinsurance and

monitoring of emerging issues.

The Company uses several methods to assess and monitor insurance risk exposures both for individual types of

risks insured and overall risks. These methods include internal risk measurement models, sensitivity analyses,

and scenario analyses

The theory of probability is applied to the pricing and provisioning for a portfolio of insurance contracts. The

principal risk is that the frequency or severity of claims is greater than expected. In addition, for some

contracts, there is uncertainty about the timing of insured events. Insurance events are, by their nature, random,

and the actual number and size or events during any one year may vary from those estimated using established

statistical techniques.

Underwriting strategy

The Company’s underwriting strategy seeks diversity to ensure a balanced portfolio and is based on a large

portfolio of similar risks over a number of years and, as such, reduces the variability of the outcome.

The underwriting strategy is set out in an annual business plan that establishes the classes of business to be

written, the territories in which business is to be written and the industry sectors in which the Company is

prepared to underwrite. This strategy is cascaded to individual underwriters through detailed underwriting

authorities that set out the limits that any one underwriter can write by line size, class of business, territory and

industry in order to ensure appropriate risk selection within the portfolio.

All general insurance contracts are annual in nature and the underwriters have the right to refuse renewal or to

change the terms and conditions of the contract at renewal. The above mentioned strategy is reviewed on a

weekly, monthly and quarterly basis to ensure adherence to the firm’s objectives.

19



4. INSURANCE AND FINANCIAL RISK MANAGEMENT (continued)

Reinsurance strategy

The Company reinsures a portion of the risks it underwrites in order to control its exposures to losses and

protect capital resources. In addition, underwriters are allowed to by facultative reinsurance in certain specified

circumstances.

Ceded reinsurance contains credit risk, and such reinsurance recoverables are reported after impairment

provisions as a result of occurred recognition asset. The Company monitors the financial condition of reinsurers

on an ongoing basis and reviews its reinsurance arrangements periodically. The Company is responsible for

setting the minimum security criteria for acceptable reinsurance and monitoring the purchase of reinsurance

against those criteria. The Company also monitors erosion of the reinsurance programme and its ongoing

adequacy. The Company utilises a reinsurance agreement with non-affiliated reinsurers to control its exposure

to losses resulting from one occurrence. For the accumulation of net property losses arising out of one

occurrence, the Company utilises a reinsurance catastrophe.

Asset/liability matching

A key aspect in the management of the Company’s risk is through matching the timing of cash flows from

assets and liabilities. The Company actively manages its financial position using an approach that balances

quality, diversification, liquidity and investment return. The goal of the investment process is to optimise the

net of taxes, risk-adjusted investment income and risk-adjusted total return, whilst ensuring that the assets and

liabilities are managed on a cash flow and duration basis. The Company reviews and approves target portfolios

on a periodic basis, establishing investment guidelines and limits, and providing oversight of the asset/liability

management process.

The Company establishes target asset portfolios for each major insurance product, which represents the

investment strategies used to profitably fund its liabilities within acceptable levels or risk. These strategies

include objectives for effective duration, yield curve, sensitivity, liquidity, asset sector concentration and credit

quality. The estimates used in determining the approximate amounts and timing of payments to or on behalf of

policyholders for insurance liabilities are regularly re-evaluated. Many of these estimates are inherently

subjective and could impact the Company’s ability to achieve its asset/liability management goals and

objectives.

Uncertainty in the estimation of future claim payments

Claims on insurance contracts are payable on a claims – occurrence basis. The Company is liable for all

insured events that occurred during the term of the contract, even if the loss is discovered after the end of the

contract term. As a result, liability claims are settled over a long period of time and the larger element of the

claims provision relates to claims incurred but not reported (IBNR) and claims incurred but not enough

reported (IBNER).

The estimated cost of claims includes direct expenses to be incurred in settling claims, net of the expected

subrogation value and other recoveries. The company takes all reasonable steps to ensure that it has

appropriate information regarding its claims exposures. However, given the uncertainty in establishing claims

provisions, it is likely that the final outcome will prove to be different from the original liability established.

The liability for these contracts comprise a provision for IBNR and IBNER, a provision for reported claims not

yet paid and a provision for unexpired risk (URR) at the statement of financial position date.

In calculating the estimated cost of unpaid claims, the Company assesses each claim separately and the

estimated cost is based on the actual claims experience, information available, and past experience of similar

claims incurred in previous periods.

The estimation of IBNR is generally subject to a greater degree of uncertainty than the estimation of the cost of

settling claims already notified, where information about the claim event is available. IBNR claims may not be

apparent to the insured until many years after the event gave rise to the claims.

Company’s calculation of the provision for IBNR and IBNER is based on previous years’ experience (on

average), considering market changes and development.

20

COSMOS INSURANCE COMPANY PUBLIC LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (continued) FOR THE YEAR ENDED 31 DECEMBER, 2013


Liability

Product features

The Company writes liability insurance in Cyprus. Under these contracts, compensation is paid for injury

suffered by individuals, including employees or members of the public. The main liability exposures are in

relation to bodily injury.

The timing of claim reporting and settlement is a function of a number of factors, including the nature of the

coverage, the policy provisions and the jurisdiction in which the contract is written. It takes a relatively long

period of time to finalise and settle certain liability claims which are of a more serious nature. The majority of

bodily injury claims have a relatively short repayment period, with most of the claims for a given accident year

to be settled in full within two years.

Management of risks

Risks arising from liability insurance are managed primarily through pricing, product design, risk selection,

appropriate investment strategy, rating and reinsurance.

The Company therefore monitors and reacts to changes in the general economic and commercial environment

in which it operates to ensure that only liability risks which meet the Company’s criteria for profitability are

underwritten.

For bodily injury liability contracts, the key risk is the trend for courts in Cyprus to award higher levels of

compensation. In pricing contracts, the Company makes assumptions that costs will increase in line with the

latest available research.

The key risks associated with these contracts are those relating to underwriting competition, claims experience

and the potential for policyholders to exaggerate or invent losses.

Fire insurance and other damage on property

Product features

The Company writes insurance against fire and other damage on property in Cyprus. Property insurance

indemnifies, subject to any limits or excesses, the policyholder against the loss or damage to their own material

property. The return to shareholders under these contracts arises from the total premiums charged to

policyholders less the amounts paid to cover claims and the expenses incurred by the Company. There is scope

for the Company to earn investment income due to the time delay between the receipt of premiums and the

payment of claims.

The event giving rise to a claim for damage to buildings or contents usually occurs suddenly (as for fire and

burglary) and the cause is easily determinable.

The claim will thus be notified promptly and can be settled without delay. Property business insurance against

fire and other damage is therefore classified as “short-tailed”, meaning that expense deterioration and

investment return will be of less importance.

Management of risks

The key risks associated with this product are underwriting risk, competitive risk and claims experience risk

(including the variable incidence of natural disasters).

The Company is also exposed to the risk of exaggeration and dishonest action by claimants. This largely

explains why economic conditions correlate with the profitability of a property portfolio.

Underwriting risk is the risk that the Company does not charge premiums appropriate for the different

properties it insures. The risk on any policy will vary according to many factors such as location, safety

measures in place and the age of property.

21




Fire insurance and other damage on property (continued)

For domestic property insurance, it is expected that there will be large numbers of properties with similar risk

profiles. However, for commercial business this will not be the case. Many commercial property proposals

comprise a unique combination of location, type of business, and safety measures in place. Calculating a

premium commensurate with the risk for these policies will be subjective, and hence risky.

These risks are managed primarily through the pricing process. The Company uses strict underwriting criteria

to ensure that the risk of losses is acceptable to the Company.

Motor insurance

Product features

The Company writes motor insurance in Cyprus. This consists of both property and liability benefits, and

therefore, includes both shorter and longer tail coverages. The payments that are made quickly indemnify the

policyholder against the value of loss on motor physical damage claims and property damage (liability) claims,

at the time the incident occurs, subject to any limits or excesses. The payments that take longer to finalise, and

are more difficult to estimate, relate to bodily injury claims. These indemnities cover the motor vehicle against

compensation payable to third parties for death or personal injury.

Management of risks

In general, claims reporting lags are minor, and claim complexity is relatively low. Overall the claims

liabilities for this line of business create a moderate estimations risk. The Company monitors and reacts to

changes in trends of injury awards, litigation and the frequency of claims appeal.

The frequency of claims is affected by adverse weather conditions, and the volume of claim is higher in the

winter months. In addition, there is a correlation with the price of fuel and economic activity, which affect the

amount of traffic activity.

Accident and health insurance

Product features

These contracts pay benefits for medical treatment and hospital expenses of a fixed amount depending on a

benefits statement. Generally, the policyholder is indemnified for only part of the cost of medical treatment or

benefits are of a fixed amount regardless of the actual cost of treatment.

Management of risks

Health insurance cover is subject to the primary peril of the need for treatment in a hospital. The Company

manages its risks through the use of medical screening in order to ensure that pricing considers current health

conditions and family medical history.

The Company is also exposed to the risk of exaggeration and dishonest action by claimants. This largely

explains why economic conditions correlate with the profitability of a property portfolio.

Marine

Product features

The marine account is mainly based on cargo business which tends to produce regular patterns of claim

frequency through years of increased frequency can arise owing to particular localised problems. The hull

portfolio is affected by weather patterns and crime patterns.

Management of risks

In general, claims reporting lags are minor, and claim complexity is relatively low. Overall the claims

liabilities for this line of business create a moderate estimations risk. The Company monitors and reacts to

changes in trends of injury awards, litigation and the frequency of claims appeal.

The frequency of claims is affected by adverse weather conditions, and the volume of claim is higher in the

winter months. In addition, there is a correlation with the price of fuel and economic activity, which affect the

amount of traffic activity.

22



5. EARNED PREMIUM

The insurance results from operations per class of business are as follows:-

Gross

premium

€

R Reinsurers’

share

€

Net

premium

€

Gross

premium €

Reinsurers’

share

€

Net

premium €

Personal accident and health 4.773.403 (171.808) 4.601.595 4.876.920 (250.776) 4.626.144

Motor 14.047.348 (11.091.016) 2.956.332 16.166.316 (13.266.884) 2.899.432

Marine, aviation and transit 134.613 (108.226) 26.387 192.927 (154.587) 38.340

Fire 2.562.050 (2.473.074) 88.976 2.805.962 (2.705.080) 100.882

Employers’ liability 787.137 (695.736) 91.401 975.088 (873.916) 101.172

Total 22.304.551 (14.539.860) 7.764.691 25.017.213 (17.251.243) 7.765.970

Technical insurance result by class of business:

2013

€

2012

€

Personal accident and health 559.508 (138.207)

Motor 312.175 762.360

Marine, aviation and transit 40.626 32.689

Fire 110.826 41.330

Employers’ liability 50.017 192.994

Total 1.073.152 891.166

Due to the fact that the investment portfolio results, other income receivable, depreciation and finance expenses

are not debited directly to the technical insurance result, it has been considered necessary that, in order to show a

fairer view of the profit or loss per class of business, it would be more suitable to show the results for each class

of insurance business rather than the results of the group as a whole.

Due to the fact that all the assets and liabilities of the group are used for domestic sales purposes, (general

insurance business) it is not feasible to analyse them by the class of insurance.

An analysis of gross earned premium per geographical area is not required, since these only concern domestic

sales.

6. INVESTMENT PORTFOLIO RESULTS

2013

€

2012

€

The investment portfolio results consist of the following:-

Profit on sale of investments 2.133 79.089

Profit on the revaluation of investments and other securities 37.312 120

Loss on sale of investments (72.902) (31.746)

Expenses for the portfolio investment (970) (4.544)

Loss on the revaluation of investments (23.993) (770.520)

(58.420) (727.601)

2013 2012

23



7. CLAIMS

Gross payments to clients 13.214.370 15.407.646

Share of reinsurers’ to the payments to clients (7.694.038) (7.421.527)

Gross movement to insurance policy liabilities (249.502) (1.254.771)

Share of reinsurers’ on the gross movement to the insurance policy liabilities 585.612 4.275

Claims management expenses reserve (6.400) 7.700

Net claims incurred but not reported (IBNR) and claims incurred but not enough

reported (IBNER)

131.074

(33.000)

5.981.116 6.710.323

8. FINANCE EXPENSES

Finance expenses comprise of the following charges: -

2013

€

2012

€

Bank interest and charges 102.984 107.176

Mortgage expenses 2.035 -

Interest for reinsurances

Interest for taxes 31.097

69

63.276

2.470

136.185 172.922

9. PROFIT / (LOSS) BEFORE TAXATION

The loss before taxation is presented after deducting the following charges:-

2013

€

2012

€

Directors’ remuneration

- Executive directors 247.830 259.544

- Non-executive directors 23.000 23.000

Employees’ salaries 2.231.883 2.570.284

Other operating expenses 303.768 316.806

Professional fees and services from third parties 110.761 122.715

Auditors’ remuneration

-audit fees

26.180

26.250

-other professional services 1.500 1.500

Finance expenses 136.185 172.922

Depreciation of property, plant and equipment 282.978 304.501

Amortisation of intangible assets 148.483 153.886

Provident fund contribution:-

For directors 9.260 22.872

For employees 87.248 108.660

The average number of employees in the group is 88 (2012: 88).

2013

€

2012

€

24



10. INVESTEMENT INCOME

Interest receivable from financial assets held for trading

58.762

107.255

Interest receivable on investments held as fixed deposits 79.460 100.291

Interest receivable from trade receivables 126.678 121.279

Dividends receivable 62 -

264.962 328.825

11. OTHER INCOME

Commission and interest from other services 49.162 85.342

Income from OSEDA - 2.921

Rent receivable 11.220 8.648

Restoration of provision for loan receivable - 226.297

Receipts from provisional bad debts 92.920 44.754

Profit from the sale of property, plant and equipment - 1.160

153.302 369.122

12. INCOME FROM CYPRUS HIRE RISK POOL OPERATIONS

The company’s share in the Cyprus Hire Risks Pool operations is analysed as follows:-

2013

€

2012

€

Insurance premium income 461.370 504.333

Other income 117.828 128.044

Claims (298.999) (334.057)

Other expenses (141.854) (209.295)

Unearned premium, 1 January 82.540 82.292

Unearned premium, 31 December (64.434) (82.540)

156.451 88.777

The group’s participation in the Cyprus Hire Risks Pool is mandatory for companies with operations in the

motor insurance industry. The group’s share of the pool profits or losses is calculated on the basis of the

group’s proportion of the motor insurance premium income to the premium income of the whole motor

insurance market in Cyprus.

13. OTHER EXPENSES

Impairment of long-term debtors 100.000 140.000

Depreciation of property, plant and equipment 282.978 304.501

Amortisation of intangible assets 148.483 153.886

Provision for bad debts 315.692 410.234

Bad debts written-off 79.390 69.037

Share of loss in minority shareholders (224) (2.072)

Loss on sale of property, plant and equipment 4.376 19.870

930.695 1.095.456

2013

€

2012

€

2013

€

2012

€

2013

€

2012

€

25



14. TAXATION

Taxation

€

Deferred

taxation

€

TOTAL

2013

€

TOTAL

2012

€

Balance 1 January 7.576 486.740 494.316 477.562

Provision for the year as it appears in the

consolidated income statement

118.768

(4.687)

114.081

33.778

Provision for deferred taxation due to revaluation - (37.600) (37.600) (6.703)

126.344 444.453 570.797 504.637

Less:-

Payments made in the year (186.844) - (186.844) (10.321)

Balance 31 December (60.500) 444.453 383.953 494.316

The reconciliation between the accounting loss and the corporation tax is as follows:-

2013

€

2012

€

Accounting gain / (loss) before taxation 106.084 (634.339)

Taxation charge according to the applicable tax rates 13.260 (63.434)

Tax result of expenses not deductible for taxation purposes 152.115 226.721

Tax effect on capital allowances and income not taxable (46.607) (100.994)

Deferred taxation (4.687) (28.515)

Taxation as per the consolidated income statement 114.081 33.778

Corporation tax

The profits of the companies within the group are liable to corporation tax with a tax rate of 12,50%.Under

current legislation, tax losses may be carried forward and be set off against taxable income of the five

succeeding years. Finally, group loss relief between the companies of the same group is allowed provided that:

1. a company is 75% subsidiary of another company or each company are 75% subsidiaries of a third

company

2. the companies which benefit the group loss relief, are companies resident in the republic of Cyprus

Special defense contribution Income from bank interest receivable is liable to taxation and assumed as income from trading activities with a

tax rate of 12,50%.

Deferred taxation A deferred tax provision is made using the tax rates which will prevail when taxes will be payable as a result of

timing differences which might occur between the accounting value of assets and liabilities based on the tax

rates. Debit balances which occur from deductible timing differences are recognized only when it is considered

probable that future profits will occur.

The parent company is considered a public company for taxation purposes.

26



15. LOSS EARNINGS PER SHARE

2013

€

2012

€

Loss attributable to the parent company’s shareholders (8.221) (670.189)

Weighted average number of shares issued

during the year

17.985.000

17.985.000

Basic and fully diluted loss per share (cent) (0,05) (3,73)

16. PROPERTY, PLANT AND EQUIPMENT

LAND

& BUILDINGS

€

MOTOR

VEHICLES

€

FURNITURE

& FITTINGS

€

TOTAL

€

2013

Cost / revaluation

Balance 1 January 4.868.000 821.232 1.293.668 6.982.900

Additions - 64.463 36.375 100.838

Disposals - (24.806) - (24.806)

Revaluation (393.000) - - (393.000)

Balance 31December 4.475.000 860.889 1.330.043 6.665.932

Depreciation

Balance 1 January 7.000 623.021 853.018 1.483.039

Charge for the year 75.300 87.254 120.424 282.978

Disposals - (15.230) - (15.230)

Revaluation (82.300) - - (82.300)

Balance 31December - 695.045 973.442 1.668.487

Net book value

Balance 31December 4.475.000 165.844 356.601 4.997.445

The respective amounts for the year 2012 are as follows:-

LAND

& BUILDINGS

€

MOTOR

VEHICLES

€

FURNITURE

& FITTINGS

€

TOTAL

€

2012

Cost / revaluation

Balance 1 January 4.885.000 814.924 1.324.176 7.024.100

Additions - 66.000 16.503 82.503

Disposals - (59.692) (47.011) (106.703)

Revaluation (17.000) - - (17.000)

Balance 31December 4.868.000 821.232 1.293.668 6.982.900

Depreciation

Balance 1 January - 551.950 772.720 1.324.670

Charge for the year 77.640 104.589 122.272 304.501

Disposals - (33.518) (41.974) (75.492)

Revaluation (70.640) - - (70.640)

Balance 31December 7.000 623.021 853.018 1.483.039

Net book value

Balance 31December 4.861.000 198.211 440.650 5.499.861

27



16. PROPERTY, PLANT AND EQUIPMENT - (continued)

On the 30th

December, 2013 (29th

December, 2012) a revaluation was performed on the immovable property of

the company from an independent professional surveyor. The surplus from the revaluation, which amounts to

€310.700 (2012: surplus € 53.640), was transferred to the revaluation reserve of immovable property.

In company’s land and buildings is included the office 801 in Quality Tower “A” in Larnaca, valued €375.000,

for which no title deeds has yet been issued in the name of the company and be mortgaged in favor of third

parties by their original owners.

The value of the immovable property that would appear in the financial statements under the historical cost less

accumulated depreciation is as follows:-

2013

€

2012

€

Land 897.973 897.973

Buildings 1.613.084 1.673.447

2.511.057 2.571.420

17. INTANGIBLE ASSETS

Computer Total Total

Goodwill Software 2013 2012

€ € € €

Cost

Balance 1 January 862.414 520.540 1.382.954 1.218.933

Additions - 129.468 129.468 164.021

Balance 31 December 862.414 650.008 1.512.422 1.382.954

Depreciation

Balance 1 January 579.206 359.998 939.204 749.032

ImCharge for the year 36.286 148.483 184.769 190.172

Balance 31 December 615.492 508.481 1.123.973 939.204

Net carrying amount

Balance 31 December 246.922 141.527 388.449 443.750

18. TRADE AND OTHER RECEIVABLES

2013

€

2012

€

Insurance premium debtors

less provision for Bad Debts 3.129.639

(174.779)

2.532.423

(120.626)

2.954.860

2.411.797

Insurance agents’ balances 5.293.452 6.680.441

less provision for Bad Debts (1.257.189) (1.133.993)

4.036.263 5.546.448

Reinsurers’ account - 79.958

Cyprus Hire Risks Pool account 963.390 1.132.919

Prepayments and other receivables 458.140 738.604

Income receivable 30.594 61.117

8.443.247 9.970.843

28



19. LONG TERM RECEIVABLES

2013

€ 2012

€

Balance 1 January 920.000 -

Additions - 700.000

Transfer from investment property - 360.000

920.000 1.060.00

Less:

Impairment (100.000) (140.000)

Balance 31 December 820.000 920.000

Long term debtors represent two properties in Larnaca acquired by the Company as part of debts repayment

which, while signed a purchase agreement and submitted to the District Land Registry in Larnaca bear with

mortgages in favor of third parties by their original owners.

20. INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

(i) Investments held for trading

2013 2012

€ €

Shares in companies listed in the Cyprus Stock Exchange 5.847 24.693

Investment in mutual funds in abroad 968.080 -

Investment in mutual funds Rules 34.786 36.798

Government and other guaranteed bonds 603.059 759.166

Total of investments held for trading 1.611.772 820.657

(ii) Investments held to maturity

Government bonds 492.510 490.270

Total of investments held to maturity 492.510 490.270

Total investments at fair value through profit or loss 2.104.282 1.310.927

21. INVESTMENT PROPERTY

2013

€

2012

€

Balance 1 January 3.364.000 3.474.000

Additions - 555.555

Loss from revaluation on investment property (403.055) (305.555)

Transfer to the long-term debtors - (360.000)

Balance 31 December 2.960.945 3.364.000

The carrying amount of investments is the fair value of the property as determined by an independent valuer

having an appropriate recognized professional qualification and recent experience in the location and category of

the property being valued. Fair values were determined having regard to recent market transactions for similar

properties in the same location of the Group’s investment property. The last revaluation of the investment

property was performed in December 2013.

Investment property includes the property, value of 356,000 for which no title deed has yet been issued in the

name of the company. For the above mention properties, have been issued exemption certificates mortgage from

the Bank of Cyprus Public Company Ltd as free from any mortgages.

The shop in Larnaca which acquired by the Company is transfer to Long term debtors as part of debt repayment

which while signed a purchase agreement and submitted in the District land Registry in Larnaca bear by a

mortgage in favor of third parties by the original owner.

29



22. TRADE AND OTHER PAYABLES

Trade and other payables 585.737 1.176.573

Accrued expenses 144.974 207.459

Deemed Dividend Distribution 23.128 -

753.839 1.384.032

23. INSURANCE LIABILITIES

The insurance liabilities are repayable as follows:

2013

€

2012

€

Within one year 242.662 2.612.633

Between two to five years 3.160.041 2.250.000

3.402.703 4.862.633

The long term insurance liabilities relate to the liabilities that the Group has to reinsurers. The insurance

liabilities do not bear any interest.

2013

€

2012

€ 24. OUTSTANDING CLAIMS

Gross outstanding claims 13.101.779 13.351.280

Provision for claims incurred but not reported (IBNR) 300.409 359.995

Provision for claims incurred but not enough reported (IBNER) 1.290.686 1.174.235

14.692.874 14.885.510

Less reinsurers’ share to:

Outstanding claims (5.298.389) (5.884.001)

Claims incurred but not reported (IBNR) (176.903) (247.176)

Claims incurred but not enough reported (IBNER) (577.083) (581.019)

(6.052.375) (6.712.196)

Net outstanding claims 8.640.499 8.173.314

Claims management expenses reserve 112.300 118.700

8.752.799 8.292.014

Α general provision for claims incurred but not reported and a provision for loss reserve incurred but not

enough reported is based on actuarial method which is made by an independent actuarial.

2013

€

2012

€

30



25. SHARE CAPITAL

2013

€

2012

€

Authorized

30.000.000 ordinary shares of €0,31 each 9.300.000 9.300.000

Issued and fully paid

1 January & 31 December

17.985.000 ordinary shares of €0,31each 5.575.350 5.575.350

There was no change in share capital of the company and therefore it remained stable at 17.985.000 shares

(2012:17.985.000 shares). Also, there are no issue rights that provide special control in shareholders, neither

restriction in voting rights of the shareholders.

26. UNEARNED PREMIUM RESERVE

2013

€

2012

€ The unearned premium reserve is analyzed as follows:-

Gross unearned premium 7.951.324 9.508.028

Reinsurance Share on Technical Reserves 2.075.225 1.986.263

Deferred acquisition expenditure (2.324.487) (2.686.795)

Share of reinsurers’ on gross unearned premium (5.868.622) (6.632.062)

1.833.440 2.175.434

Based on the Insurance Company Law of 2002 – 2013, the group and the company when calculating its

technical reserves has calculated a provision for all the deferred acquisition expenditure which are directly

connected to the gross unearned premium. The deferred acquisition expenditure relates to the expenses which

are connected directly with insurance policies which have been issued during the financial year and relate to

risk periods starting from the 1st January of the following year. The deferred acquisition expenditure has been

calculated using the same basis, which has been used for the calculation of the gross unearned premium.

27. LOANS

2013 2012

€ €

Balance 1 January 1.087.603 1.403.847

Additions 200.000 -

Repayments (864.148) (316.244))

Balance 31 December 423.455 1.087.603

The long term loans are repayable as follows:

Within one year 423.455 265.289

Between two to five years - 822.314

423.455 1.087.603

The Company’s loans are secured by assignment of the purchase agreement contact for office with no. 801 and

with registration no. 12/1680, 12/1681, 12/1682, 12/1683 and 12/1684 in Larnaca.

In addition, the Company’s loans in 2012 was secured by a mortgage on specific floors of company’s owned

building at 46 Griva Digeni Avenue, Nicosia, amount of €1.879.462.

31



28. CASH AND CASH EQUIVALENTS

2013

€

2012

€

Cash and cash equivalents comprise of the following items:-

Cash at bank 2.497.872 3.656.294

Cash in hand 95.442 59.436

Bank overdraft (156.678) -

2.436.636 3.715.730

The bank overdraft is secured with a mortgage on specific floors of company’s owned building at 46 Griva

Digeni Ave., Nicosia, for an amount of €1.879.462.

The bank overdraft rate of interest is 6,15% per annum while the bank rate of interest on deposits is 2,00% -

2,50% per annum.

29. INVESTMENT IN SUBSIDIARY COMPANY

The subsidiary company during the year which is directly and indirectly controlled private company is:-

Name of company

Activities

Registered

country

Percentage of

participation

Nominal value

of share capital

€

Cosmos International Life

Insurance (Agencies) Ltd

Provide life assurance

intermediary business

Cyprus

81,25%

344.000

30. TRANSACTIONS WITH RELATED PERSONS AND COMPANIES

(a) Amount due from subsidiary company

“Cosmos International Life Insurance Agencies Ltd” (1.563) (862)

The above transactions have been carried on a commercial basis.

2013

€

2012

€

32



31. INTEREST IN THE COMPANY BY MEMBERS OF THE BOARD OF DIRECTORS

The percentage into the company’s issued share capital which is held by members of the board of directors,

their husbands and their under age children and companies in which they hold directly or indirectly at least

20% of the voting rights in a general meeting are as follows:-

Name

31/12/2013

Percentage (%)

26/03/2014

Percentage (%)

Andreas P. Erotokritou 1,93 1,93

- Stella Erotokritou 0,31 0,31

Andreas Erotokritou Estates Ltd 0,23 0,23

Michael K. Tyllis 50,36 50,36

- Kyriakos M. Tyllis & Co Ltd 50,08 50,08

Andreas K. Tyllis 50,85 50,85

- Kyriakos Μ. Tyllis & Co Ltd 50,08 50,08

- Maria Tylli 0,73 0,73

Andreas Efthymiou 0,68 0,68

- Anastasia Efthymiou 0,01 0,01

Frixos Kitromilides 0,31 0,31

Nikolaos Plakides - -

Michael Skoufarides 0,05 0,05

Agathocleous Costas 0,12 0,12

The change in the percentage of shares held by the members of the board of directors for the period 31

December, 2013 and 30 days before the date of the notice for the Annual General Meeting appears under the

column with date 26 March, 2014.

32. MATERIAL INTEREST BY OTHER SHAREHOLDERS

In accordance with the register of members, apart from the board of directors, the following shareholder held

on the dates shown below more than 5% of the company’s issued share capital.

Name

31/12/2013

Percentage (%)

26/03/2013

Percentage (%)

Κyriakos Μ. Tyllis & Co Ltd 50,08 50,08

Naso Eliadou Insurance Agents &Consultants Ltd 10,43 10,31

-Pantelis Eliades 2,08 1,96

33



33. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

General

The Group has exposure to the following risks from its use of financial instruments:

(i) Credit risk

(ii) Liquidity risk

(iii) Market risk

(iv) Operational risk

(v) Compliance risk

(vi) Legal risk

(vii) Other risks

The notes below presents information about the Group’s exposure to each of the above risks, the Group’s

objectives, policies and processes for measuring and managing risk, and the Group’s management of capital.

The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk

management framework.

The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to

set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management

policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities.

The main financial assets of the Group are the investments, reinsurers’ share of claims and other insurance

reserves, insurance and other receivables, cash and cash equivalents, insurance and other payables and bank

overdrafts. The main financial liabilities of the Group are the long term loans, claims and other creditors and

bank overdrafts.

(i) Credit risk

Credit risk arises when a failure by counter parties to discharge their obligations could reduce the amount

of future cash inflows from financial assets on hand at the statement of financial position date. The

Company has no significant concentration of credit risk. The Group has policies in place to ensure that

sales of products and services are made to customers with an appropriate credit history and monitors on a

continuous basis the ageing profile of its receivables. Cash balances are held with high credit quality

financial institutions and the Company has policies to limit the amount of credit exposure to any financial

institution.

Trade and other receivables

The Group's exposure to credit risk is influenced mainly by the individual characteristics of each

customer.

The Group establishes an allowance for impairment that represents its estimate of incurred losses in

respect of trade and other receivables. The main components of this allowance are a specific loss

component that relates to individually significant exposures and a collective loss component established

for groups of similar assets in respect of losses that have been incurred but not yet identified.

Exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure

to credit risk at the reporting date was:

2013 2012

€ €

Investments at fair value

through profit or loss 492.510 490.270

Investment held for trading 1.611.772 820.657

Trade and other receivables 8.443.247 9.970.843

Reinsurers’ share of claims

and technical reserves 11.920.997 13.344.258

Cash and cash equivalents 2.593.314 3.715.730

25.061.840 28.341.758

34



33. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

(i) Credit risk (continued)

No customer balance represents a significant percentage of the total trade receivables. The movement of

provision concerning the impairment of trade and other receivables during the year is as follows:

2013 2012

€ €

On 1 January 1.254.618 972.138

Provision for the year 177.350 282.480

On 31 December 1.431.968 1.254.618

(ii) Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.

Liquidity risk is the risk that arises when the maturity of assets and liabilities does not match. An unmatched

position potentially enhances profitability, but can also increase the risk of losses. The Group has

procedures with the object of minimizing such losses such as maintaining sufficient cash and other highly

liquid current assets.

In addition the Company’s Management, within the boundaries of compliance with the requirements of the

Law on Insurance Services and other Related Issues, oversees in regular timing intervals the placing of

assets in approved investments for the purpose of covering the Company’s technical reserves so as to ensure

the security, return and liquidity of investments.

The contractual maturities of the financial liabilities including estimated interest repayments are presented

below:

35




(ii) Liquidity risk (continued)

Contractual

Carrying cash Within More than

amounts flows One year 2-3 years 2 – 5 years 5 years

2013 € € € € € €

Bank loans 423.455 (423.455) (423.455) - - -

Insurance liabilities 3.402.703 (3.402.703) (3.402.703) - - -

Trade and other payables 753.839 (753.839) (753.839) - - -

Bank overdraft 156.678 (156.678) (156.678) - - -

31 December 2013 4.736.675 (4.736.675) (4.736.675) - - -

Contractual

Carrying cash Within More than

amounts flows One year 2-3 years 2 – 5 years 5 years

2012 € € € € € €

Bank loans 1.087.603 (1.174.085) (682.094) (252.507) (239.484) -

Insurance liabilities 4.862.633 (2.379.938) (74.250) (1.801.563) (504.125) -

Trade and other payables 1.384.032 (1.384.032) (1.384.032) - - -

Bank overdraft - - - - - -

31 December 2012 7.334.268 (4.938.055) (2.140.376) (2.054.070) (743.609) -

36




(iii) Market risk

Market risk is the risk of changes in market prices, such as foreign exchange rates, interest rate and equity

prices which affect the Group’s income or the value of financial assets. The purpose of managing market

risk is the management and control of market risk through acceptable variables and at the same time

increasing returns.

Currency risk

Currency risk is the risk that the value of financial assets and liabilities may fluctuate due to changes in

foreign currency exchange rates. Currency risk arises when future commercial transactions, as well as

recognised assets and liabilities are denominated in a currency that is not the Group’s measurement

currency. The Group is exposed to foreign exchange risk arising from various currency exposures

primarily with respect to investments listed in foreign stock exchange. The Company’s management

monitors exchange rate fluctuations on a continuous basis and act accordingly

Interest rate risk

Interest rate risk is the risk that the value of financial instruments may fluctuate due to changes in market

interest rates. The Group’s management monitors interest rate fluctuations on a continuous basis and acts

accordingly. The financial assets closely related to interest rate risk are as follows:

2013 2012

€ €

Fixed rate instrument

Government and other

secured bonds 1.095.569 1.379.186

Fixed deposits 1.451.268 2.260.510

2.546.837 3.639.696

Variable rate instruments

Financial assets

Cash at bank 1.046.605 1.395.784

Financial liabilities

Bank loans (423.455) (1.087.603)

Bank overdraft (156.678) -

466.472 308.181

37




(iii) Market risk (continued)

Market price risk

Market price risk is the risk that the value of financial instruments will fluctuate as a result of changes in

market prices. The Group's available-for-sale financial assets and financial assets at fair value through

profit or loss are susceptible to market price risk arising from uncertainties about future prices of the

investments. The Group's market price risk is managed through diversification of the investment

portfolio.

The Group’s exposure to the market price risk is the risk that the value of investments in securities will

fluctuate as a result of changes in market prices (Note 19). Τhe Group’s market price risk is managed

through diversification of the investment portfolio (investments in Cyprus Stock Exchange and foreign

Stock Exchange).

(iv) Operational risk

Operational risk is the risk that derives from the deficiencies relating to the Group's information

technology and control systems as well as the risk of human error and natural disasters. The Group's

systems are evaluated, maintained and upgraded continuously.

(v) Compliance risk

Compliance risk is the risk of financial loss, including fines and other penalties, which arises from non-

compliance with laws and regulations of the state. The risk is limited to a significant extent due to the

supervision applied by the Compliance Officer, as well as by the monitoring controls applied by the

Group.

(vi) Legal risk Legal risk is the risk of financial loss, interruption of the Group or any other undesirable situation that

arises from the possibility of non-application or violation of legal contracts and consequentially of

lawsuits. The risk is limited through the contracts used by the Group to perform its work.

(vii) Other risks

The general economic environment prevailing in Cyprus and internationally may affect the Company's

operations to a great extent. Economic conditions such as inflation, unemployment, and development of

the gross domestic product are directly linked to the economic course of every country and any variation

in these and the economic environment in general may create chain reactions in all areas hence affecting

the Company.

Capital management

The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market

confidence and to sustain future development of the business. The Board of Directors monitors the return on

capital which the Group defines as total shareholders’ equity, excluding any non-redeemable preference shares

and non- controlling interest, and the levels of dividends to the ordinary shareholders.

The Group’s overall strategy remains unchanged during the year. The Group is not subject to any external

claims with regard to its capital.

Fair value

The important financial asset for the Group is the cash at bank, investments and trade and other receivables. The

important financial liabilities for the Group are bank overdraft and bank loans, trade and other payables, due to

reinsurance amount, outstanding claims and provision for unearned premiums.

The fair value of the rest financial instruments for the Group is approximate the same to the amounts

disclosed in the statement of financial position.

38



34. AGREEMENTS WITH MEMBERS OF THE BOARD OF DIRECTORS

There have been no material transaction at the end of the financial years that these financial statements refer,

between any of the members of the board of directors and the company except from the employment contracts

of the executive vice-chairman and the managing director which are for five years (expire 31.12.2014) and in

the case of an early termination of employment the appropriate compensation consist of six monthly salaries

except in case where the early termination of employment is due to reasons that the employment law provides

for termination without any compensation. The salary for the two Executive Directors consists of a fixed

monthly salary and for encouraging them they get additional performance related payment based on the profit

attributable to the shareholders.

The above bonuses are calculated as follows:-

(a) For profits up to € 341.720 - NIL

(b) For profits between € 341.721 - € 512.580 a bonus of 2% is given

(c) For profits between € 512.581 - € 854.300 a bonus of 3% is given

(d) For profits up to € 854.301 and above a bonus of 5% is given

Apart from the above there are no other annual bonus schemes but they are entitled as a benefit in kind the use

of a company car. Finally the two Executive Directors are participating in the company’s provident fund of the

employees and they are not entitled to any other supplementary pension scheme or scheme due to early

retirement. In accordance with the employment contracts of the two Executive Directors their annual total

remuneration fall due between € 85.430 and € 170.860 each without any remuneration from their participation

in the Company’s Board of Directors meetings.

35. COMMITMENTS/CONTINGENT LIABILITIES

On the 31 December, 2013 the company has not had any commitments or contingent liabilities.

36. DISCLOSURE OF GENERAL EVENTS

The negotiations of the Cyprus Government with the European Commission, the European Central Bank and

the International Monetary Fund (the “Troika”), in order to obtain financial support, resulted in an agreement

and decision of the Eurogroup on 25 March 2013 on the key elements necessary for a future macroeconomic

adjustment programme which includes the provision of financial assistance to the Republic of Cyprus of up to

€10 billion. The programme aims to address the exceptional economic challenges that Cyprus is facing, and

to restore the viability of the financial sector, with a view to restoring sustainable economic growth and sound

public finances in the coming years.

The Eurogroup decision on Cyprus includes plans for the restructuring of the financial sector and safeguards

deposits below €100.000 in accordance with European Union legislation. In addition, the Cypriot authorities

have reaffirmed their commitment to step up efforts in the areas of fiscal consolidation, structural reforms and

privatizations.

On 12 April 2013 the Eurogroup welcomed the agreement that was reached between Cyprus and the Troika

institutions regarding the macroeconomic adjustment programme for Cyprus. Subsequently all the necessary

procedures for the formal approval of the Board of Directors of the European Stability Mechanism were

completed, as well as the ratification by Eurozone member states. Following the completion of the above

procedures, the first tranche of the financing of the Republic of Cyprus was released in line with the

provisions of the Memorandum.

39



36. DISCLOSURE OF GENERAL EVENTS (continued)

On 22 March 2013 legislation was enacted by the House of Representatives concerning restrictive measures in

respect of transactions executed through the banking institutions operating in Cyprus. The extent and duration

of the restrictive measures are decided by the Minister of Finance and the Governor of the Central Bank of

Cyprus and were enforced on 28 March 2013. The temporary restrictive measures, with respect to banking and

cash transactions include restrictions on cash withdrawals, the cashing of cheques and transfers of funds to

other credit institutions in Cyprus and abroad. They also provide for the compulsory partial renewal of certain

maturing deposits.

On 18 April 2013 legislation was enacted by the House of Representatives to increase the corporate tax from

10% to 12.5% with effect from 1 January 2013. Furthermore, legislation was enacted to increase the rate of

special defense contribution from 15% to 30% on interest which does not arise from the ordinary course of

business or is closely linked to it with effect from 29 April 2013.

On 29 March 2013 the Central Bank of Cyprus issued decrees relating to Laiki Bank and Bank of Cyprus,

implementing measures for these two banks under the Resolution of Credit and Other Institutions Law of 2013.

On the basis of the relevant decrees, Laiki Bank was placed into resolution. What remained in Laiki Bank

were mainly the uninsured deposits and assets outside Cyprus. The assets of Laiki Bank in Cyprus, the insured

deposits and the Eurosystem financing have been transferred to Bank of Cyprus, with compensation for the

value of the net assets transferred, the issue of shares by Bank of Cyprus to Laiki Bank.

The recapitalization process for the Bank of Cyprus was completed in accordance with the relevant decrees of

the Resolution Authority through “bail-in”, that is through the partial conversion of uninsured deposits into

shares. In addition, the holders of shares and debt instruments in Bank of Cyprus on 29 March 2013 have

contributed to the recapitalization of Bank of Cyprus through the absorption of losses.

37. EVENTS AFTER THE REPORTING PERIOD

There are no material events after the reporting period.

38. RECONCILIATION BETWEEN THE ANNUAL AUDITED CONSOLIDATED FINANCIAL

STATEMENTS AND THE LAST PUBLISHED RESULTS INDICATOR FOR THE YEAR 2013

2013

€

Consolidated loss after taxation according to the preliminary results for the year (188.126)

Adjustment for net earned premiums 126.422

Adjustment for reinsurance commissions (429.853)

Adjustment for claims 515.377

Adjustment for commission payable (10.257)

Adjustment for provisional tax (21.560)

Consolidated loss after taxation according to the audited consolidated statement (7.997)

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