Arab Re Annual Report · Mr. Mohamed Hammoud Mr. Mohammad Naji Ahmed Manager Technical Ms. Basma...
Transcript of Arab Re Annual Report · Mr. Mohamed Hammoud Mr. Mohammad Naji Ahmed Manager Technical Ms. Basma...
Dear Shareholders,
It gives me great pleasure to present to the Shareholders of Arab Reinsurance Company (Arab Re) a report on the company’s activities and achievements, along with
its financial statement, during the year ended on December 31, 2010. In this report, we will be dwelling on the most important financial, technical, and
administrative developments that have taken place during the reporting period.
The Company worked throughout the year faced with a challenging economical environment, coupled with newly imposed strict financial controls, as a result of the
international economy financial crisis of 2008.
As you are all aware, end of 2010 marked the start of the political movement in a number of Arab countries which in turn impacted their economy, as well as the
economy of other Arab countries. God willing, we expect the direct effect of these events, on Arab Re’s book of business, to be limited; especially since the
income arising from these countries does not exceed 20% of the Company’s total portfolio. As for Arab Re’s share of these losses; we do not expect them to
make a large dent in its results, in view of the company's adequate retrocession programs, which will efficiently reduce their impact on the Company's net
results.
Ultimately, our main concern and wish is for these disturbances to end soon, to the benefit of the Arab region.
In this respect, we would like to illuminate the following:
1. The Company developed its accounting standards by starting to adopt the International Reporting Financial Standards (IRFS4) phase II which is due for
implementation in the upcoming three years. These standards demand a high level of analysis and accurate estimations. A high level expertise team in the
company was able to successfully complete this task, in coordination with the Company’s external and independent auditor. Having said that, the Company is
now in a position to assist other Arab insurance companies in similar implementation, if needed; placing them in the same league as the international players.
2. The Company’s portfolio is split between Arab and Non-Arab business and management continues to follow the directives set by the Board of Directors in
cancelling all technically losing businesses and increasing its shares in more lucrative ones from all regions. Even if this action led to a temporary decline in
the written premium, it is positively reflected in the Company’s net income, which amounted to USD6.8 million. The Company will make up for this drop in
the near future in terms of quantity and quality of business.
As for the Company’s future expansion plans, the Company’s management has undergone in-depth studies to place the pillars needed to write new more
lucrative lines of business in other branches of insurance. The above plan will be implemented together with a more intensive marketing program, higher
visibility in international insurance conferences, and the hosting of Arab Re’s own specialized workshops.
3. The Company’s executive management, under the guidance of the Board of Directors, maintained its ambitious investment policy, which is based on a
deliberately diversified investment portfolio spread geographically. This enabled it to record a rewarding investment return with a rate of 6.7% despite the
unfavorable investment environment, the global decrease of interest rates, and tough regulations enforced on main international markets.
The Company’s management gave special attention to its investment activities, and supported the division by supplying it with the appropriate human skills
and by organizing constructive workshops and specialized technical seminars. In addition to the allocation of additional investment funds that will come
through the resolutions of the Board of Directors to increase the Company’s paid-up capital gradually to reach USD 100 million in the next few years, which
will reinforce the management’s productive and competitive ability while enabling it to invest in schemes with higher returns
Letter From The Chairman
4. During the preceding period, the Company’s main heading was to invest in its human resources. This will continue with special attention given to the training
and development of the staff and the participation in specialized seminars. The Company is also implementing the human resource plan, set by an international
consultancy firm which consists of upgrading the job descriptions, work procedure manual, and restructuring of the Company. It will continue to recruit young
skilled personnel, from various scientific and technical backgrounds, as well as capable specialized managers, which started with the appointment of a general
manager as of May 1, 2010 known for his competence and experience in the insurance and reinsurance industry as well as the actuarial field.
On this occasion, we are pleased to announce the launching of the Company’s updated website www.arabre.com, in cooperation and coordination between our
internal team and a specialized new Media agency. The said site will be an open portal to constantly provide efficient information and eventually the technical
mechanisms needed to perform transactions and communicate via this gateway.
In addition, the Company is proceeding with the publication of a periodical E-Newsletter that will address essential topics and include useful scientific research.
This will be prepared, as a joint effort, by the Company’s employees. The said newsletter will be an integral part of the above website which will help in placing
the Company within the same rank of other regional and international companies.
The follow-up and effort of the audit committee, the formation of a Risk Management committee during the year, the commitment of the internal audit section
to the resolutions of the Board of Directors, as well as the programmed development of the 3-years IT plan, constitute an effective contribution in the
achievement and the developments of all the above-mentioned.
5. The Company has maintained its previous AM Best rating of B+ (Good) with a Positive Outlook. This is a positive indicator, especially given the sovereign
rating of Lebanon and its effect on the rating of companies registered there. The above did not deter the executive management from making extraordinary
efforts in improving the Company’s performance on all levels: technical, financial, and administrative. As for the Board of Directors, it continued its support
and guidance by keeping up with the Company’s effort and recommending the increase in capital.
I would like to ascertain that the full coordination between the Board of Directors and the executive management, as well as the continuous support of our
Shareholders, are the main elements that made the Company’s expansion possible while securing its solvency by its increased equity.
Based on the above-mentioned constructive and successful progresses, and confirmed by the enclosed financial statements, our trust in the Company’s bright future is
increasing day after day. We highly appreciate the confidence bestowed on us by our clients, and your good-selves, as well as the dear trust and constant
support of our board’s actions. All of this would not have been possible if it wasn’t for our employees’ hard work, loyalty, and beliefs in successfully realizing
the Company’s goals
Letter From The Chairman
Peace be upon you and God bless.
Khaldoun Bakri Barakat
Chairman of the Board
Board of Directors
Vice Chairman
Member
Member
Member
Member
Member
Member
Member
Chairman
Management
Sheikh Khaldoun Barakat
Chairman
Mr. Tannous Feghali
Vice-Chairman
Mr. Salim Kojok Mr. Robert IraniMr. Zouhair Daoud
Assistant General Manager
(Administration)
Assistant General Manager
(Finance)
Assistant General Manager
(Investment)
Mr. Ronald Chidiac
General Manager
Management
Heads of Departments
Managers
Arab Reinsurance Pool
Mr. Mohamed HammoudMr. Mohammad Naji Ahmed
Manager
Technical
Ms. Basma Barakat
Technical
Mr. Ibrahim Yassin
Internal Audit
For the Financial Year Ended December 31,2010
Report of the Board of Directors
Dear Shareholders,
The Board of Directors of Arab Reinsurance Company is pleased to submit to you its Annual Report for the period ending December 31, 2010; where you can find details on technical,
financial, investment, and administrative achievements. Also attached are the financials encompassing the balance sheet, the income statement, the statement of changes in equity, and
the cash flow statement; together with a summary of the significant accounting policies retained and other explanatory notes.
The report and statements were prepared in accordance with the International Financial Reporting Standards (IFRS), which are in line with the requirements of the international rating
agencies, and which will be adopted within the next three years.
Our Company is a pioneer in the region in implementing these accounting standards for the 2010 financial year. In order to apply such standards, our team went through a rigorous
process with comprehensive analysis and accurate estimations. Needless to say that it gained extensive experience in this field, and as such, it could provide advice and technical
assistance to Arab insurance and reinsurance companies for the coming period. We have to thank our independent auditor for having actively assisted us in this endeavor.
On this occasion, we would like to clarify that the financial statements based on the new accounting standards have to be restated for 2009 and 2008 accordingly. Therefore, financial
statements related to 2010 will be taken as the year of reference when comparing statements of 2011 as at 31 December of this year, and subsequent years when adopting the
international standards.
The Company continued to achieve positive results, with a net profit of USD 6.8 million. Such results were achieved despite the economical slow-down and tough regulations enforced
on main international markets in order to address the implications of the financial crisis that hit the global economy two years ago, and hence prevent a similar situation to occur in the
future. The Company’s conservative investment policy contributed mainly in achieving our financial return; assets diversification and geographical distribution having protected us
from the negative impact of the financial crisis. The Company achieved an investment return of 6.7%, which represent a target that most companies would hardly achieve during these
difficult economic conditions.
We should also pinpoint that other factors contributed in achieving such good result, the most important one being the active role held by the management while implementing the
Board of Directors directives in terminating losing business, even though such measure will be lowering our premiums for 2010. However, premium growth will resume rapidly with
the efforts deployed by the executive management through intensive marketing visits to the Arab markets and some foreign markets as well.
While continuing referring to marketing, we are pleased to announce that the Company’s website www.arabre.com was launched, in cooperation and coordination between a team
from within the Company and a company specialized in New Media. The said team will continue working on the site while providing the latest information about our Company as well
as important insurance news; which may generate some additional business.
Moreover, the Company started working on the publication of a periodical E-Newsletter which will be considered as a communication tool for the Company’s employees to share their
views on scientific/technical and social responsibility issues. The said newsletter is to be considered as one main component of our website, positioning the Company alongside
renowned global companies.
In 2010, our Company maintained its AM Best rating of B+ (Good) Positive Outlook. This is a positive indicator as rating agencies hardly provide a rating that exceeds the Lebanese
State sovereign rating. This did not deter the executive management to make substantial efforts to improve the Company’s performance on technical, financial, and administrative
levels. Such achievements couldn’t be reached without the Board of Directors continuous support, which persists as it has recently provided recommendations to increase the
Company’s capital to USD 100 million, in stages, over a few years period. It is without any doubt that this capital increase will better position the Company to generate more business,
while providing funds that will offering access to more investment opportunities, as well as hoisting of our rating if God wills.
The Company’s executive management achieved the plan approved by the Board of Directors, which relates to the development of human resources. In this respect, a contract was
signed with leading institutions in the training field and the mission started according to a pre-planned agenda. In parallel, the executive management continued recruiting the needed
expertise across all departments.
Finally, we would like to express to our clients and to our Shareholders, our sincere thanks and appreciation for their support and cooperation. We shall also take this opportunity to
thank our staff on their determination and admirable performance. May God bless our efforts, and we hope that you will find our audited financial statements, relating to our
Company’s results for the year ended on December 31, 2010, compared to 2009 and 2008 after the required modifications pursuant to the International Financial Reporting Standards,
to be satisfactory.
Board of Directors
For the Financial Year Ended December 31,2010
Report of the Board of Directors
1) Underwriting Activities
a) Earned PremiumEarned premiums during 2010 reached USD 57 million compared to USD 61 million for the previous fiscal year.
The earned premiums from the Arab region reached 78% of the total gross premium.
The following table shows the premium for each class of business in 2010 compared to the previous fiscal year :
Currency: US Dollars
2010 2009
Earned Premium Distribution
Branch 2010 Branch % 2009 Branch % Increase %
Fire 23.310.578 40.9 22.108.062 36.4 5.4
Accidents 14.122.199 24.8 15.413.527 25.3 (8.4)
Engineering 9.933.028 17.4 12.737.254 20.9 (22.0)
Total Non-Marine 47.365.805 83 50.258.843 83 (5.8)
Cargo 6.185.652 10.9 6.737.955 11.1 (8.2)
Hull 3.321.818 5.8 3.613.760 5.9 (8.1)
Aviation 43.092 0.1 60.668 0.1 (29.0)
Total Marine 9.550.562 17 10.412.383 17 (8.3)
Life 41.688 0.1 132.353 0.2 (68.5)
Total Gross Earned Premium 56.958.055 100 60.803.579 100
For the Financial Year Ended December 31,2010
Report of the Board of Directors
b) Retained Premiums
The Company retains various percentages of its acceptances in the various reinsurance classes. This retention is protected by
appropriate Excess of Loss covers. Retained premiums in all classes during the period under consideration amounted to USD 45
million, representing 79% of the Gross earned global premiums, compared to USD 46 million in the previous year which
represented 76% of the Gross earned premium. The increase in the retention’s percentage this year is due to the Company’s policy
in increasing the retention in some classes, while continuing to re-visit the adequacy of its excess of loss covers in relation to
specific losses as well as catastrophic events.
c) Commissions & Acquisition Costs
This section includes original commissions paid to ceding companies, reinsurer brokers, profit commission, and other costs relating
to reinsurance activities. The total amount paid during the period under review amounted to USD 15 million, compared to USD 17
million in the previous year. The percentage of acquisition costs this year was equivalent to 27% of GPI, compared to the same rate
in the previous year. Such level was maintained due to the inward’s business results and increase acceptance of non-proportional
covers, which are characterized by lower commissions.
d) Incurred losses
The total incurred losses during the year under consideration amounted to USD 43 million compared to USD 44 million in the
previous year, representing a minor decrease of 1%. Loss Ratio stands at 76% for 2010 compared to 72% for previous year, which
is due to the increase in the Company’s technical reserves.
The Company’s retention (net of our retrocessionnaires’ share) of paid claims was 68% this year compared to 78% for the previous
year. This difference is explained by the fact that several major losses where settled during the previous year, thus contributing in
the increase of claims paid by our retrocessionnaires.
e) Net of Technical Results
Net Technical results at the end of year 2010 reached 94% compared to 104% in the previous year, which confirms the
improvement of our results due to our underwriting strategy and the reduction of the number of claims during this year.
For the Financial Year Ended December 31,2010
Report of the Board of Directors
2) Investments
Invested funds during this year amounted on average to USD 113 million including the increase of the paid-up capital from USD 50
million to USD 60 million. The return on investment amounted at USD 7.5 million by the end of this year, with a rate of return
standing at 6.7% compared to USD 6.9 million and a rate of 6.1% for the previous year.
Moreover, the return on investment exceeded the budgeted amount of USD 7 million for 2010, despite the economical difficulties, the
decrease of the international interest rates, as well as our upheld policy to prompt claim payments, which remains our signature. We
outperformed our budget mainly due to the good choice of our investments in nature and geographic distribution.
It shall be noted that the invested funds include cash at banks, term deposits in banks, and financial institutions non residents, in
addition to investments in securities and fixed assets.
It is worth mentioning that technical provisions amounted to 40% of the global invested funds.
3) General and Administrative Expenses
The General and Administrative expenses amounted this year to USD 3.4 million representing 6% of the gross earned premiums,
against USD 3 million thus representing an increase of 13%; which is quite logical given the increase in our operational costs and our
workforce.
4) Results of the Financial Year
The Board of Directors, in its meeting held on March 22, 2011, decided to distribute the net income of the financial year ended
December 31, 2010, subject to the approval of the General Assembly of the Company’s Shareholders, as follows :
Net income for the year 6,766,207
Proposed allotment:
- Transfer to capital reserve at 10% 676,620
- Distribution of dividends at 5% of paid up capital as at December 31, 2010 as a
first payment according to Company’s by-laws3,000,000
- Distribution of dividends at 5% of paid up capital as at December 31, 2010 as an
additional payment3,000,000
Total proposed allotments 6,676,620
Net balance after proposed allotments to be transferred to the retained earnings
accounts89,587
Currency: US Dollars
For the Financial Year Ended December 31,2010
Report of the Board of Directors
The allotments of net income, except for the transfer to capital reserve, are subject to the approval of the General Assembly of the
Company’s Shareholders, which will be held to approve the financial statements for the year ended December 31, 2010.
According to Article 60 of the Company’s bylaws, 10% of the annual net income should be transferred to capital reserve until the
total of this reserve becomes equal to the Company’s capital. This reserve includes the legal reserve required according to Article
165 of the Lebanese Code of Commerce. This reserve is not available for distribution to Shareholders.
Annual Growth of Company's Profit
2006 2007 2008 2009 2010
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
10,000,000
(restated)
Report on the financial statements
We have audited the accompanying financial statements of Arab Reinsurance Company S.AL. which comprise the statement of financial
position as of 31 December 2010 and the statement of comprehensive income, statement of changes in equity and cash flow statement for
the year then ended and a summary of significant accounting policies and other explanatory notes.
Management's responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with the International
Financial Reporting Standards (IFRS), and for such internal control as management determines necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with
International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance whether the 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 financial
statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's
preparation and fair presentation of the financial statements 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 management, as well as evaluating
the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of Arab Reinsurance
Company S.A.L. as of 31 December 2010 and its financial performance and its cash flows for the year then ended in accordance with
International Financial Reporting Standards.
Beirut, Lebanon
13 May 2011
Independent Auditor’s Report
Statement of Financial PositionArab Reinsurance Company SAL (Inter-Arab Company)S
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2010 2009 2008
Notes US$ US$ US$
(Restated) (Restated)
ASSETS
Property and equipment 5 2,972,456 3,110,040 2,939,686
Investment property 6 581,566 589,583 597,600
Deferred acquisition cost 23 7,569,091 8,292,955 10,100,630
Financial assets held to maturity 7 54,433,736 44,435,600 40,748,847
Available for sale financial assets 8 8,353,949 13,441,510 15,978,235
Insurance receivables 9 57,925,202 57,598,422 60,516,997
Reinsurance assets 16 20,958,038 19,532,009 28,447,873
Bank deposits with original maturity of more than 3 months 10 56,647,545 52,953,147 59,122,303
Cash and cash equivalents 11 2,674,641 2,983,232 1,416,259
TOTAL ASSETS 212,116,224 202,936,498 219,868,430
EQUITY AND LIABILITIES
Equity
Capital 13 60,000,000 50,000,000 50,000,000
General reserves 4,500,000 4,500,000 4,500,000
Legal reserves 14 9,620,289 9,154,216 8,200,591
Fair value reserve 12 (185,029) (83,813) 1,047,016
Retained earnings 12,051,561 10,751,427 14,500,590
Total shareholders' equity 85,986,821 74,321,830 78,248,197
Liabilities
Insurance contract 16 104,776,823 105,340,474 118,000,287
Unearned reinsurance commission 21 1,916,867 2,782,195 3,417,388
Retirement benefit obligation 17 185,049 126,977 165,319
Accounts payable 17 19,163,664 20,305,022 19,944,239
Income tax provision 27 87,000 60,000 93,000
Total liabilities 126,129,403 128,614,668 141,620,233
TOTAL EQUITY AND LIABILITIES 212,116,224 202,936,498 219,868,430
The financial statements were authorized for issue in accordance with the board of directors resolution on 22 March 2011. The board elected the
Chairman and the Vice chairman to sign the financial statements
Statement of Comprehensive Income Arab Reinsurance Company SAL (Inter-Arab Company)
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2010 2009
Notes US$ US$
Insurance premium revenue 19 56,958,055 60,803,579
Insurance premium ceded to reinsurers 19 (12,136,891) (14,735,878)
Net insurance premium revenue 44,821,164 46,067,701
Investment income 20 7,515,741 6,898,705
Reinsurance commission income and profit sharing 21 3,438,468 4,321,995
Other operating income 26 54,299 581,944
Net income 55,829,672 57,870,345
Insurance claims and loss adjustment expenses 22 (43,056,125) (43,619,404)
Insurance claims and loss adjustment expenses recovered from
reinsurers
22 12,683,213 7,578,622
Net insurance claims (30,372,912) (36,040,782)
Expenses for acquisition of insurance contracts 23 (15,133,461) (16,533,857)
Expenses for administration and other expenses 24 (3,434,222) (2,978,327)
Expenses (48,940,595) (55,552,966)
Profit before tax 6,889,077 2,317,379
Income tax 27 (122,870) (112,917)
Profit for the year 6,766,207 2,204,462
Other comprehensive income for the year
Change in fair value reserve of available for sale financial
assets
(101,216) (1,130,829)
Total comprehensive income for the year 6,664,991 1,073,633
Statement of Changes in EquityArab Reinsurance Company SAL (Inter-Arab Company)
Year Ended December 31, 2010
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Share General Legal Fair value Retained
Capital reserve reserve reserve earnings Total
US$ US$ US$ US$ US$ US$
Balance at 1 January 2009 - as reported 50,000,000 4,500,000 8,200,591 (832,384) 14,650,428 76,518,635
Effect of restatement of the financial statements (note 30) - - - - 1,729,562 1,729,562
Effect of restatement of the fair value reserve - - - 1,879,400 (1,879,400) -
Balance at 1 January 2009 - restated 50,000,000 4,500,000 8,200,591 1,047,016 14,500,590 78,248,197
Profit for the year (restated) - - - - 2,204,462 2,204,462
Dividends distributed (note 15) - - - - (5,000,000) (5,000,000)
Transfers to legal reserves (note 14) - - 953,625 - (953,625) -
Change in value reserves for available for sale financial assets - - - (1,130,829) - (1,130,829)
Balance at 31 December 2009 50,000,000 4,500,000 9,154,216 (83,813) 10,751,427 74,321,830
Profit for the year - - - - 6,766,207 6,766,207
Transfers to legal reserves (note 14) - - 466,073 - (466,073) -
Increase in capital (note13) 10,000,000 - - - - 10,000,000
Change in fair value reserves for available for sale financial
assets
- - - (101,216) - (101,216)
Dividends distributed (note 15) - - - - (5,000,000) (5,000,000)
Balance at 31 December 2010 60,000,000 4,500,000 9,620,289 (185,029) 12,051,561 85,986,821
Statement of Cash FlowsArab Reinsurance Company SAL (Inter-Arab Company)
Year Ended December 31
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2010 2009
Notes US$ US$
Cash flows from operating activities
Net cash used in operating activities 29 (3,830,679) (3,745,905)
Cash flows from investing activities
Purchase of available for sale financial assets 8 (308,165) (3,090,622)
Purchase of financial assets held to maturity 7 (10,279,905) (6,707,513)
(Increase) decrease in bank deposits with original maturity
of more than 3 months (3,694,398) 6,169,156
Purchase of property and equipment 5 (10,576) (309,682)
Proceeds from sale of property and equipment - 832
Interest received 6,752,635 7,154,016
Income from sale of available for sale financial assets 5,562,497 4,047,892
Maturity of financial assets held to maturity 500,000 3,048,800
Net cash (used in) provided from investing activities (1,477,912) 10,312,879
Cash flows from financing activities
Dividends paid (5,000,000) (5,000,000)
Increase in capital 10,000,000 -
Net cash provided from (used in) operating activities 5,000,000 (5,000,000)
Net (decrease) increase in cash and cash equivalents (308,591) 1,566,974
Cash and cash equivalents at beginning of year 2,983,232 1,416,258
Cash and cash equivalents at end of year 11 2,674,641 2,983,232
Notes To The Financial StatementsArab Reinsurance Company SAL (Inter-Arab Company)
Year Ended December 31, 20101. General informationArab Reinsurance Company S.A.L. ("the Company") is incorporated and licensed by a special presidential decree Number 2933 on 11 March 1972 as a Lebanese
joint stock company (Inter-Arab Company) to carry all reinsurance and investments activities and was registered in the Commercial Register of Beirut under
number 26233.
2. Summary of significant accounting policiesThe principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all
the years presented, unless otherwise stated.
2.1 Basis of presentationThe financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") and IFRIC interpretations.
The financial statements are prepared in US dollars which is the functional currency of the Company unless, otherwise stated.
The financial statements have been prepared in accordance with IFRS defined under IAS 1 'Presentation of financial statements'. The financial statements have
been prepared under the historical cost convention, except for the available for sale financial assets carried at fair market value.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise
its judgement in the process of applying the Company's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the financial statements are disclosed in note 3.
2.2 Adoption of new and revised IFRSThe Company adopted during the year all new and amended international standards that are related to the Company's activities effective 1 January 2010. No
major changes resulted from the adoption of these standards.
(a) New standards, amendments and interpretations effective in 2010:
- IAS 1 (amended), "presentation of financial statements" (effective 1 January 2010).
- IAS 7 (amended), "Statement of cash flows" (effective 1 January 2010).
- IAS 32 (revised), "Financial instruments: presentation" (effective 1 February 2010). This standard allows the classification of the issuance of rights as
property rights when its prices are set other than the functional currency of the company. This standard is effective as at 1 February 2010 with a
retroactive effect.
- IAS 2 (revised), "Group's transactions paid in cash and payments based on the basis of equity" (effective 1 January 2010). These amendments are
explained in details under IFRIC 11 "Group transactions and treasury shares" in to treat the classification of the group that were not treated under IFRIC
11, in addition, those standards integrate the results of IAS 8 "Range of IAS 2" and note 11. These amendments are applied with a retroactive effect.
- IAS 9 "Financial instruments part 1: classification and measurement". This standard was issued during November 2009. This standard replaces parts of
the IAS 39 related to the presentation and measurement of financial assets. The main principles for this standard are as follows:
- The financial assets are presented in 2 types of measurement: The one measured later with what is called fair value and the one measured with
redemption cost. The measurement decision is based on the initial recognition of assets. This classification is based on the operational model
that the company follows in the management of its financial assets.
- The requirement of the measurement of financial instrument is based on redemption cost even if the objective of the company is to keep the
asset in order to collect the cash flow and so that cash flow represents the value of repayments and the correspondent interest. The measurement
of other financial assets is based on fair value from profit and loss.
Notes To The Financial StatementsArab Reinsurance Company SAL (Inter-Arab Company)
Year Ended December 31, 2010
(b) New standards, amendments and interpretations issued for the financial year but not applicable and not being previously adopted by the company:
- Revised IAS 24 (revised), 'Related party disclosures', issued in November 2009. It supersedes IAS 24, 'Related party disclosures', issued in 2003. IAS 24
(revised) is mandatory for periods beginning on or after 1 January 2011. Earlier application, in whole or in part, is permitted. The revised standard clarifies and
simplifies the definition of a related party and removes the requirement for government-related entities to disclose details of all transactions with the government
and other government-related entities. The Company will apply the revised standard from 1 January 2011. The impact of this standard is not expected to be
significant.
- IFRS 9, 'Financial instruments', issued in November 2009. This standard is the first step in the process to replace IAS 39, 'financial instruments: recognition
and measurement'. IFRS 9 introduces new requirements for classifying and measuring financial assets and is likely to affect the Company's accounting for its
financial assets. The standard is not applicable until 1 January 2013 but is available for early adoption.
2.3 Change in accounting policies and adjustments related to prior yearsAs of 1 January, 2010, the Company changed its accounting policy in respect of the recognition of revenue, claims and expenses of acquisition of insurance
contracts based on the revenue expected to be received from insurance companies "estimated premium income" and respective claims based on the ultimate loss
ratio.
The Company was previously recognising revenue upon receipt of statements from insurance companies and upon claims notification, without taking into account
the statements relating to financial year that are not yet received and the respective claims incurred but not reported to the Company before closing the financial
year related to estimated business.
This accounting policy was applied retrospectively on all the years presented in these financial statements as if this accounting policy was always applied. This
change has impacted the retained earnings negatively as of 31 December 2008 by US$ 4,953,680 and affected the net profits for the year 2009 negatively by US$
1,283,782.
In addition, and as of 1 January 2010, the Company changed its accounting policy in respect of the recognition of reinsurance commission income and expenses of
acquisition of insurance contracts. The Company started to recognise reinsurance commission income and expenses of acquisition of insurance contracts
proportionally over the period of coverage and in line with the ceded premium to reinsurers on insurance contracts issued. The Company was previously
recognising reinsurance commission income and expenses of acquisition of insurance contracts upon issuance of insurance contracts.
This new accounting policy was applied retrospectively on all years presented in these financial statements as if this policy has always been applied. The negative
effect on retained earnings as of 31 December 2008 from the recognition of unearned reinsurance commission amounted to US$ 3,417,388. Net profits for the year
31 December 2009 were affected positively by US$ 635,193. Moreover, the recognition of the deferred acquisition cost impacted positively the retained earnings
as at 31 December 2008 by US$ 10,100,630 when net profits for the year ended 31 December 2009 were negatively affected by US$ 1,807,675.
During 2010, the Company made an adjustment related to 2008 to record the impairment of available for sale financial assets in the statement of comprehensive
income instead of the fair value reserve. The impairment loss on the investments amounted to US$ 1,879,400.
Notes To The Financial StatementsArab Reinsurance Company SAL (Inter-Arab Company)
Year Ended December 31, 2010
2.4 Property and equipmentAll property and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the
items.
Depreciation is calculated using the straight-line method to write off the cost or revalued amount of each asset to their residual values over their estimated useful
lives as follows:
Subsequent expenditures are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic
benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the
statement of comprehensive income during the financial period in which they are incurred.
An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount.
The recoverable amount is the higher of the asset's fair value less costs to sell and value in use.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount. These are included in the statement of comprehensive income.
Upon sale of revalued assets, the related amounts accounted for under fair value reserves will be transferred to retained earnings.
2.5 Investment propertyProperty held for long-term rental yields that is not occupied by the Company is classified as investment property.
Investment property comprises land and buildings which are stated at historical cost based on IAS 40 'Investment property'.
Depreciation on the building is calculated using the straight-line method to allocate cost over the estimated useful economic lives. The estimated useful economic
life is 50 years.
The investment property carrying amount will be written down immediately to its recoverable amount, if the asset's carrying amount is greater than its estimated
recoverable amount.
2.6 Financial assets
2.6.1 Classification
The Company classifies its financial assets in the following categories: available for sale financial assets, held to maturity financial assets and receivables. The
classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial
recognition and re-evaluates this designation at every reporting date.
(a) Available-for-sale financial assets
Available for sale investments are financial assets that are intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or
changes in interest rate, exchange rates or equity prices or that are not classified in loans and receivables or at fair value through profit and loss.
Years
Buildings 50
Leasehold improvements 3
Office equipment 5-13
Furniture 13
Other equipment 10
Notes To The Financial StatementsArab Reinsurance Company SAL (Inter-Arab Company)
Year Ended December 31, 2010(b) Held to maturity financial assets
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Bank's management has the
positive intention and ability to hold to maturity, these do not include:
(i) those that the Company intends to sell immediately or in the short term, which are classified as held for trading, and those that the Company upon initial
recognition designates as at fair value through profit or loss; (ii) those that the Company upon initial recognition designates as available for sale; or (iii)
those for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration.
The above are classified in the statement of financial position accordingly and the effective interest rate is applied.
These are initially recognised at fair value including direct and incremental transaction costs and measured subsequently at amortised cost, using the effective
interest method.
Interest on held-to-maturity investments is included in the statement of comprehensive income and reported as 'Interest and similar income'. In the case of
impairment, the impairment loss is reported as a deduction from the carrying value of the investment and recognised in the statement of comprehensive income as
"Net gains (losses) on investment securities".
(c) Receivables
Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than those that the Company
intends to sell immediately or in the short term, which are classified as at fair value through profit or loss.
Receivables are recognised initially at fair value and measured subsequently at amortised cost using the effective interest rate method, less provision for impairment.
A provision for impairment of receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to
their original terms. Receivables arising from insurance contracts are also classified in this category and are reviewed for impairment as part of the impairment
review of receivables.
2.6.2 Recognition and measurement
Regular way purchases and sales of financial assets are recognised on the trade-date – the date on which the group commits to purchase or sell the asset. Investments
are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss.
Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred
substantially all risks and rewards of ownership. Available-for-sale financial assets are subsequently carried at fair value. Receivables are carried at amortised cost
using the effective interest rate method.
The unrealized gains and losses resulting from the changes in the fair value of investments classified as available for sale are recognized in the fair value reserve in
shareholders’ equity. When securities available for sale financial assets investments are sold or impaired, the accumulated fair value adjustments are recognised in
the statement of comprehensive income.
Changes in the fair value of monetary securities denominated in a foreign currency and classified as available for sale are analysed between translation differences
resulting from changes in the amortised cost of the security and other changes in the carrying amount of the security. The translation differences on monetary
securities are recognised in profit or loss; translation differences on non-monetary securities are recognised in equity. Changes in the fair value of monetary and non-
monetary securities classified as available for sale are recognised in equity.
Interest on available for sale investments are recognised using the effective interest method is in the statement of comprehensive income. Dividends on available for
sale equity instruments are recognised in the statement of comprehensive income when the Company's right to receive payments is established. These revenues are
recognised under investment income.
The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active, the Company establishes fair value by using
valuation techniques. These include the use of recent arm's length transactions, reference to other instruments that are substantially the same, discounted cash flow
analysis and option pricing models making maximum use of market inputs and relying as little as possible on entity-specific inputs.
Notes To The Financial StatementsArab Reinsurance Company SAL (Inter-Arab Company)
Year Ended December 31, 2010
2.7 Impairment of financial assets
(i) Financial assets carried at fair value
The Company assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of
equity securities classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining
whether the securities are impaired. If any such evidence exists for available for sale financial assets, the cumulative loss - measured as the difference between the
acquisition cost and current fair value, less any impairment loss on that financial asset previously recognised in profit or loss - is removed from equity and
recognised in the statement of comprehensive income. Impairment losses recognised in the statement of comprehensive income on equity instruments are not
subsequently reversed.
The impairment loss is reversed through the statement of comprehensive income, if in a subsequent period, the fair value of a debt instrument classified as
available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised the in statement of
comprehensive income.
(ii) Assets carried at amortised cost
The Company assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or
group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that have
occurred after the initial recognition of the asset (a 'loss event') and that loss event (or events) has an impact on the estimated future cash flows of the financial asset
or group of financial assets that can be reliably estimated.
The criteria that the Company uses to determine that there is objective evidence of an impairment loss include:
- significant financial difficulty of the issuer or obligor;
- a breach of contract, such as a default or delinquency in interest or principal payments;
- the lender, for economic or legal reasons relating to the borrower's financial difficulty, granting to the borrower a concession that the lender
would not otherwise consider;
- it becomes probable that the borrower will enter bankruptcy or other financial reorganisation;
- the disappearance of an active market for that financial asset because of financial
difficulties; or
- observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the
initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, including:
(i) adverse changes in the payment status of borrowers in the Company; and
(ii) national or local economic conditions that correlate with defaults on the assets in the Company.
The Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant. If the Company
determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of
financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for
which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.
For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (ie, on the basis of the
Company's grading process that considers asset type, industry, geographical location, past-due status and other relevant factors). Those characteristics are relevant
to the estimation of future cash flows for groups of such assets by being indicative of the issuer's ability to pay all amounts due under the contractual terms of the
debt instrument being evaluated.
If there is objective evidence that an impairment loss has been incurred, the carrying amount of the asset is reduced through the use of an allowance account and
the amount of the loss is recognised in the income statement. If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed by adjusting the allowance account.
The amount of the reversal is recognised in statement of comprehensive income.
Notes To The Financial StatementsArab Reinsurance Company SAL (Inter-Arab Company)
Year Ended December 31, 20102.7 Impairment of financial assets (continued)(iii) Other non-financial assets
Assets that have an indefinite useful life, for example land, are not subject to amortisation and are tested annually for impairment. Assets that are subject to
amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss
is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less
costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows.
2.8 Offsetting financial instrumentsFinancial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts
and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.
2.9 Dividend distributionDividend distribution to the Company's shareholders is recognised as a liability in the Company's financial statements in the period in which the dividends are
declared by the general assembly of shareholders.
2.10 Retirement benefit obligationsThe Company is subscribed to the compulsory defined benefit plan in accordance with the National Social Security Fund. A defined benefit plan is a pension plan that
defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and
compensation.
The liability recognised in the balance sheet in respect of the defined benefit plan is the present value of the defined benefit obligation at the balance sheet date less
contributions to the fund, together with adjustments for actuarial gains/losses and past service costs. The defined benefit obligation is calculated annually by the
Company using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows
using interest rates of government securities that have terms to maturity approximating the terms of the related liability.
2.11 Foreign currency translation(a) Functional and presentation currency
Items included in the financial statements are measured using the currency of the primary economic environment in which the Company operates ("the
functional currency"). The financial statements are presented in US Dollars ("US$"), which is the Company's functional and presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign
exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognized in the statement of comprehensive income.
2.12 Cash and cash equivalentsCash and cash equivalents consist of deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less.
2.13 Share capitalOrdinary shares are classified as equity.
2.14 Current income taxThe income tax charge is calculated at the rate of 15% of assumed profit which represents 5% of gross premiums written in Lebanon and other operating income on
the basis of the local laws.
2.15 Investment incomeInvestment income mainly comprises interest and dividend income and realised gains and losses on sale of shares. Investment income is stated net of investment
expenses and charges.
Interest income is recognised on accrual basis. Interest includes interest earned on bank deposits and held to maturity investments. Dividend income is recognised
under investment income when dividends are declared. Realised gains and losses from sale of investments are calculated as the difference between net proceeds from
sale and the carrying value of investments.
Notes To The Financial StatementsArab Reinsurance Company SAL (Inter-Arab Company)
Year Ended December 31, 2010
2.16 Insurance contractsThe Company enters into insurance agreements whereby it compensates insurance companies for losses on one or more contracts issued by these companies. Such insurance agreements
transfer significant insurance risk to the Company.
(a) Recognition and measurement
The Company's insurance contracts cover general insurance risks insured by the Company.
General insurance contracts cover insurance risks written by the ceding companies. They protect the customers of the ceding companies from damage suffered to their assets as well as
against the risk of causing harm to third parties as a result of their legitimate activities. General insurance contracts also protect the customers of the ceding companies from the
consequences of events such as illness and disability.
Premiums are recognized as revenue when they are underwritten, and they include an estimation of underwritten premiums that are not yet received from the ceding companies and in
proportion with the period of coverage. Unearned premiums represent the proportion of premiums accepted in the year that relate to unexpired terms of policies in force at the statement
of financial position date, calculated on a time apportionment basis.
Claims and loss adjustments expenses are recognized in the statement of comprehensive income when incurred and based on the estimated claims on the basis of the ultimate cost of
settling the claims, using the ultimate loss ratios of the benefits due to contract holders and the third parties affected by the contract holders. These expenses include claims and loss
adjustment expenses direct or indirectly related to events occurring within the balance sheet date even if they were not reported to the Company.
The claims provisions cover future payments obligations from claims in respect of which the amount of the insurance benefit and / or the time of payment are still uncertain. These are
established for losses from loss events that occurred prior to the statement of financial position date. The level of the provision is based on information provided by cedants. Additional
provisions are constituted in cases where the provisions indicated by cedants are considered to be inadequate. The provisions also include claim settlement costs.
Taking into consideration the fact that significant time lags may exist between loss events and notification of the claims to the Company, incurred but not reported claims ("IBNR") are
established on the basis of the Company's own estimates for claims that have already been incurred but not yet reported. These are guided by the principle of best estimate using actuarial
methods (e.g. ultimate loss ratio methods). Such estimates are based upon both past experience and assessments of the future development. The adequacy of the provisions is regularly
reviewed.
The company does not discount liabilities for unpaid claims.
(b) Deferred acquisition costs
Commissions and other acquisition costs that are related to securing new contracts and renewing existing contracts are capitalized as deferred acquisition cost - ("DAC"). All other costs
are recognized as expenses when incurred. The DAC is subsequently amortised over the life of the contract. The resulting change to the carrying value of the DAC is charged to the
statement of comprehensive income.
(c) Reinsurance contracts held
Contracts entered into by the Company with reinsurers under which the Company is compensated for losses on one or more insurance contracts issued by the Company are classified as
reinsurance contracts held.
The benefits to which the Company is entitled under its reinsurance contracts held are recognized as reinsurance assets. These assets consist of short-term balances due from reinsurers
(classified within receivables), as well as longer-term receivables (classified as reinsurance assets) that are dependent on the expected claims and benefits arising under the related
reinsurance contracts. Amounts recoverable from or due to reinsurers are measured consistently with the amounts associated with the reinsurance contracts and in accordance with the
terms of each reinsurance contract. Reinsurance liabilities are primarily premiums payable for reinsurance contracts and are recognized as an expense when due.
The Company assesses its reinsurance assets for impairment on a yearly basis. If there is objective evidence that the reinsurance asset is impaired, the Company reduces the carrying
amount of the reinsurance asset to its recoverable amount and recognizes that impairment loss in the statement of comprehensive income. The Company gathers the objective evidence
that a reinsurance asset is impaired using the same process adopted for financial assets held at amortized cost. The impairment loss is also calculated following the same method used for
these financial assets. These processes are described in note 2.6.
Reinsurance commissions income received from reinsurers are earned over the same period as the related ceded premiums.
(d) Receivables and payables related to insurance contracts
Receivables and payables are recognized when due. These include amounts due to and from insurance companies and brokers. If there is objective evidence that the reinsurance
receivable is impaired, the Company reduces the carrying amount of the reinsurance receivable accordingly and recognises that impairment loss in the statement of comprehensive
income. The Company gathers the objective evidence that a reinsurance receivable is impaired using the same process adopted for loans and receivables. The impairment loss is also
calculated under the same method used for these financial assets.
Notes To The Financial StatementsArab Reinsurance Company SAL (Inter-Arab Company)
Year Ended December 31, 2010
2.17 Comparative figuresCertain comparative figures have been re-classified in order to conform with current year presentation.
3 Critical accounting estimates and judgements
The Company makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgments are
continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the
circumstances.
(a) The ultimate liability arising from claims under insurance contracts
The estimation of the ultimate liability arising from claims made under insurance contracts is one of the Company's critical accounting estimates. There are several
sources of uncertainty that need to be considered in the estimate of the liability that the Company will ultimately pay for such claims.
(b) Process used to decide on assumptions
The risks associated with these insurance contracts are complex and subject to a number of variables that complicate quantitative sensitivity analysis.
The Company uses assumptions based on a mixture of internal and market data to measure its claims liabilities. Internal data is derived mostly from the Company's
quarterly claims reports and screening of the actual insurance contracts carried out at year-end 2010 to derive data for the contracts held. The Company has
reviewed the individual contracts and in particular the industries in which the insured companies operate and the actual exposure years of claims. This information
is used to develop scenarios related to the latency of claims that are used for the projections of the ultimate number of claims.
The Company uses the ultimate loss ratio based on history and experience and multiplies this ratio by the earned premiums in order to estimate the ultimate cost of
claims.
4 Management of insurance and financial risk
The Company issues contracts that transfer issuance risks. This section summarizes the way the Company manages this risk.
4.1 Insurance riskThe risk under one insurance contract is the possibility that the insured event occurs and the uncertainty of the amount of the resulting claim. By the very nature of
an insurance contract, this risk is random and therefore unpredictable.
The principal risk that the Company faces under its insurance contracts is that the actual claims and benefit payments exceed the carrying amount of the insurance
liabilities. This could occur because the frequency or severity of claims and benefits are greater than estimated. Insured events are random and the actual number
and amount of claims and benefits will vary from year to year from the level established using statistical techniques.
Experience shows that the larger the portfolio of similar insurance contracts, the smaller the relative variability about the expected outcome will be. In addition, a
more diversified portfolio is less likely to be affected by a change in any subset of the portfolio. The Company has developed its insurance underwriting strategy
to diversify the type of insurance risks accepted and within each of these categories to achieve a sufficiently large population of risks to reduce the variability of
the expected outcome.
Factors that aggravate insurance risk include lack of risk diversification in terms of type and amount of risk, geographical location and type of industry covered.
Notes To The Financial StatementsArab Reinsurance Company SAL (Inter-Arab Company)
Year Ended December 31, 20104.1 Insurance risk (continued)(a) Frequency and severity of claims
The frequency and severity of claims can be affected by several factors. The Company manages these risks through its underwriting strategy, adequate reinsurance
arrangements and proactive claims handling.
The underwriting strategy attempts to ensure that the underwritten risks are well diversified in terms of type and amount of risk and industry. Underwriting limits are in place
to enforce appropriate risk selection criteria. For example, the Company has the right not to renew individual policies, it can impose deductibles and it has the right to reject
the payment of a fraudulent claim.
The Company is protected by reinsurance arrangements including quota share, surplus excess of loss treaties as well as catastrophe treaties.
The concentration of insurance risk before and after reinsurance in relation to the type of general insurance risk accepted is summarized below, with reference to the
carrying amount of the related insurance liabilities (gross and net of reinsurance) arising from general insurance contracts:As at 31 December 2010 In US$ Type of risk
Fire Engineering Marine Motor Other Total
Gross 33,660,915 29,144,250 8,220,703 13,035,153 20,715,802 104,776,823
Net 24,801,649 18,672,244 8,067,216 13,035,153 19,242,523 83,818,785
As at 31 December 2009 in US$ Type of risk
Fire Engineering Marine Motor Other Total
Gross 32,037,366 28,715,756 8,738,261 14,930,876 20,918,215 105,340,474
Net 22,969,226 18,444,706 8,591,089 14,930,876 20,872,568 85,808,465
(b) Sources of uncertainty in the estimation of future claim payments
Claims on general 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 a larger element of the
claims provision relates to incurred but not reported claims ("IBNR"). There are several variables that affect the amount and timing of cash flows from these contracts.
These mainly relate to the inherent risks of the business activities carried out by insurance companies and the risk management procedures they adopted.
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, a provision for
reported claims not yet paid and a provision for unexpired risks at the balance sheet date.
In calculating the estimated cost of unpaid claims (both reported and not), the Company's estimation techniques are a combination of loss-ratio-based estimates and an
estimate based upon actual claims experience using predetermined formulae where greater weight is given to actual claims experience as time passes.
The initial loss-ratio estimate is an important assumption in the estimation technique and is based on previous years' experience, adjusted for factors such as premium rate
changes, anticipated market experience and historical claims inflation.
The estimation of IBNR is generally subject to a greater degree of uncertainty than the estimation of the cost of settling claims already notified to the Company, where
information about the claim event is available. IBNR claims may not be apparent to the insured until several months after the event that gave rise to the claims has
happened.
In estimating the liability for the cost of reported claims not yet paid the Company considers any information available from loss adjusters and information on the cost of
settling claims with similar characteristics in previous periods. Large claims are assessed on a case-by-case basis or projected separately in order to allow for the possible
distortive effect of their development and incidence on the rest of the portfolio.
Where possible, the Company adopts multiple techniques to estimate the required level of provisions. This provides a greater understanding of the trends inherent in the
experience being projected. The projections given by the various methodologies also assist in estimating the range of possible outcomes. The most appropriate estimation
technique is selected taking into account the characteristics of the business class and the extent of the development of each accident year.
Notes To The Financial StatementsArab Reinsurance Company SAL (Inter-Arab Company)
Year Ended December 31, 2010
4.2 Financial riskThe Company is exposed to a range of financial risks through its financial assets, financial liabilities, reinsurance assets and insurance liabilities. In particular the
key financial risk is that in the long term the proceeds from its financial assets are not sufficient to fund the obligations arising from its insurance contracts. The
most important components of this financial risk are interest rate risk, equity price risk, foreign currency risk and credit risk.
These risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements. The risk
that the Company primarily faces due to the nature of its investments and liabilities is equity price risk. The Company manages these positions to achieve
investment returns in excess of its obligations under insurance contracts. The Company has not changed the processes used to manage its risks from previous
periods.
4.2.1 Market risk
Market risk is comprised of interest rate risk, equity price risk and currency risk.
(i) Interest rate risk
The Company's revenue will be significantly affected by changes in prevailing interest rates since a portion of its income derives from interest on investments
and bank deposits because interest-bearing assets earn interest at fixed rates.
• Exposure to interest rate risk
The table below summarises the effective interest rate at balance sheet date:
Effective interest rate
2010 2009
% %
Held to maturity investments 7.13 8.23
Bank deposits 5.64 5.81
Cash and cash equivalents 0.52 0.56
The sensitivity analysis for interest rate risk illustrates how changes in the fair value or future cash flows of a financial instrument will fluctuate because of
changes in market interest rates at the reporting date.
A change in 5% from interest income on cash and bank deposits would result in a gain or loss for the year of US$ 145,000 (2009 - US$ 167,000), recognized in
the statement of comprehensive income.
(ii) Equity price risk
The sensitivity analysis for equity risk illustrates how fair value of equity securities will fluctuate because of changes in market prices, whether those changes
are caused by factors specific to the individual equity issuer, or factors affecting all similar equity securities traded in the market.
The equity securities described in this note are classified as financial assets at fair value available for sale.
An increase or decrease in value by 5% (2009-5%) would result in the change of fair value of available for sale financial assets by US$ 417,697 (2009- US$
672,075).
Notes To The Financial StatementsArab Reinsurance Company SAL (Inter-Arab Company)
Year Ended December 31, 2010
(iii) Currency risk
The Company underwrites insurance contracts mainly in US Dollar. The Company concentrates its investments in assets denominated in the same currency as their
related liabilities; which reduces the foreign currency exchange risk for these operations. The Company's exposure to foreign currencies arises from assets and
liabilities that are denominated in currencies other than the US$.
In case of an increase or decrease in the price of Turkish lira against US Dollars by 5% (2009- 5%) with all other variables held constant, the profit for the year would
have an increased or decreased by US$ 456,000 (2009 - US$ 354,000).
In case of an increase or decrease in the exchange rate of other currencies against the US$ by 5% (2009- 5%) with all other variable held constant, the profit for the
year would increase or decrease by US$ 53,000 (2009- US$ 110,000).
The table below summarizes the Company's exposure to foreign currency exchange rate risk at 31 December 2010 and 2009. The Company's assets and liabilities
included in the table are categorized by currency at their carrying amount.
Indexed Turkish Lira Other Total
As at 31 December 2010 US$ in US$ in US$ in US$ in US$
Assets
Property and equipment 2,972,456 - - - 2,972,456
Investment property 581,566 - - - 581,566
Deferred acquisition cost 1,522,198 2,890,777 1,216,269 1,939,847 7,569,091
Available for sale financial assets 8,353,949 - - - 8,353,949
Held to maturity financial assets 54,200,403 - - 233,333 54,433,736
Insurance receivables 11,611,316 18,200,894 7,515,975 20,597,017 57,925,202
Reinsurance assets 3,470,719 9,517,479 3,876,410 4,093,430 20,958,038
Bank deposits with original maturity of more than 3 months 56,647,545 - - - 56,647,545
Cash and cash equivalents 2,301,652 - - 372,989 2,674,641
Total Assets 141,661,804 30,609,150 12,608,654 27,236,616 212,116,224
Liabilities
Insurance contracts 17,278,436 47,729,665 19,429,445 20,339,277 104,776,823
Unearned reinsurance commission 385,496 732,087 308,019 491,265 1,916,867
Accounts payable 6,003,878 5,820,355 2,001,401 5,338,030 19,163,664
Retirement benefit obligation 185,049 - - - 185,049
Income tax provision 87,000 - - - 87,000
Total liabilities 23,939,859 54,282,107 21,738,865 26,168,572 126,129,403
Net balance sheet position at 31 December 2010 117,721,945 (23,672,957) (9,130,211) 1,068,044 85,986,821
As at 31 December 2009
Total Assets 132,665,293 32,287,356 12,303,134 25,680,715 202,936,498
Total liabilities 25,435,345 55,927,368 19,377,183 27,874,772 128,614,668
Net balance sheet position at 31 December 2009 107,229,948 (23,640,012) (7,074,049) (2,194,057) 74,321,830
Notes To The Financial StatementsArab Reinsurance Company SAL (Inter-Arab Company)
Year Ended December 31, 20104.2.2 Credit risk
The Company has exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. Key areas where the Company is exposed to
credit risk are:
– reinsurance assets including receivables from reinsurers;
– amounts due from insurance contract holders;
– amounts due from insurance intermediaries
– bank deposits; and
– financial assets held to maturity
The Company structures the levels of credit risk it accepts by placing limits on its exposure to a single counterparty, or groups of counterparty. Such risks are subject to a
regular review. Reinsurance is used to manage insurance risk. This does not, however, discharge the Company's liability as primary insurer. If a reinsurer fails to pay a
claim for any reason, the Company remains liable for the payment to the policyholder. The creditworthiness of reinsurers is considered by reviewing their financial
strength prior to finalization of any contract.
The table below summarizes assets bearing credit risk: 2010 2009
US$ US$
Insurance receivables (excluding prepayments) 57,862,576 57,534,251
Reinsurance assets 20,958,038 19,532,009
Financial assets held till maturity 54,433,736 44,435,600
Bank deposits 56,647,545 52,953,147
Cash and cash equivalents (excluding cash on hand) 2,673,377 2,983,232
Total assets bearing credit risk 192,575,272 177,428,239
The assets above are analyzed in the table below using Standard & Poor's rating or equivalent when not available from Standard & Poor's. The concentration of credit
risk is substantially unchanged compared to the prior year.
2010 2009
US$ US$
AA 2,941,307 2,820,301
A 13,582,711 10,640,983
BBB 15,235,591 12,822,812
Below BBB or not rated 130,229,240 121,538,139
Total 161,988,849 147,822,235
Pipeline receivable 30,586,423 29,606,004
192,575,272 177,428,239
Notes To The Financial StatementsArab Reinsurance Company SAL (Inter-Arab Company)
Year Ended December 31, 2010
4.2.3 Liquidity risk
The table below indicates the estimated amount and timing of cash flows arising from liabilities:
At 31 December 2010
In US$ Expected cash flows (undiscounted)
Carrying
Amount 0-1 year 1-2 years 2-3 years 3-4 years > 5 years
General insurance contracts 104,776,823 56,237,807 17,750,952 10,428,400 7,018,091 13,341,573
Less: reinsurance assets (20,958,038) (10,294,795) (3,634,869) (2,154,244) (1,542,558) (3,331,572)
Unearned reinsurance commission 1,916,867 1,916,867 - - - -
85,735,652 47,859,879 14,116,083 8,274,156 5,475,533 10,010,001
At 31 December 2009
In US$
General insurance contracts 105,340,474 52,886,554 18,449,179 11,641,808 8,521,207 13,841,726
Less: reinsurance assets (19,532,009) (10,190,661) (3,137,085) (1,896,649) (1,417,977) (2,889,637)
Unearned reinsurance commission 2,782,195 2,782,195 - - - -
88,590,660 45,478,088 15,312,094 9,745,159 7,103,230 10,952,089
Notes To The Financial StatementsArab Reinsurance Company SAL (Inter-Arab Company)
Year Ended December 31, 2010
5 Property and equipmentLand Leasehold Office Other
& building Improvements Furniture Equipment Equipment Total
in US$ in US$ in US$ in US$ in US$ in US$
In 1 January 2009
Cost 3,221,419 - 347,214 21,670 190,783 3,781,086
Accumulated depreciation (369,960) - (278,162) (21,670) (171,608) (841,400)
Net book value 2,851,459 - 69,052 - 19,175 2,939,686
Year ended 31 December 2009
Net book amount at the beginning of the year 2,851,459 - 69,052 - 19,175 2,939,686
Additions - 225,000 59,137 570 24,975 309,682
Disposals - - (1,400) - (200) (1,600)
Depreciation charge (39,723) (68,063) (19,367) (570) (10,005) (137,728)
Net book amount at the end of the year 2,811,736 156,937 107,422 - 33,945 3,110,040
31-Dec-09
Cost 3,221,419 225,000 404,951 22,240 215,558 4,089,168
Accumulated depreciation (409,683) (68,063) (297,529) (22,240) (181,613) (979,129)
Net book value 2,811,736 156,937 107,422 - 33,945 3,110,040
Year ended 31 December 2010
Net book amount at the beginning of the year 2,811,736 156,937 107,422 - 33,945 3,110,040
Additions - - 675 105 9,796 10,576
Depreciation charge (39,727) (74,250) (22,783) (105) (11,295) (148,160)
Net book amount at the end of the year 2,772,009 82,687 85,314 - 32,446 2,972,456
31-Dec-10
Cost 3,221,419 225,000 405,626 22,345 225,354 4,099,744
Accumulated depreciation (449,410) (142,313) (320,312) (22,345) (192,908) (1,127,288)
Net book value 2,772,009 82,687 85,314 - 32,446 2,972,456
Investment property comprises commercial shops leased or empty in Beirut central district in Maarad Street. The Company is holding the buildings for its
long term rental income.
The Company’s investment property revenue of its long term rent has reached US$ 105,000 in 2010 (2009- US$ 142,000).
2010 2009
US$ US$
Cost 665,676 665,676
Depreciation (84,110) (76,093)
At end of year 581,566 589,583
6 Investment property
Notes To The Financial StatementsArab Reinsurance Company SAL (Inter-Arab Company)
Year Ended December 31, 2010
7 Financial assets held till maturity2010 2009
US$ US$
Assets held to maturity
Debt securities issued by Lebanese Banks 3,294,398 3,141,549
Debt securities issued by the Lebanese government 36,269,495 36,011,364
Foreign debt securities 13,746,572 4,342,513
53,310,465 43,495,426
Interest earned but not received 1,123,271 940,174
54,433,736 44,435,600
Summarised below is the movement of financial assets held to maturity:
8 Available for sale financial assets Restated
2010 2009
US$ US$
Financial assets at fair value- listed 3,926,671 6,015,952
Financial assets at fair value- not listed 4,427,278 7,366,808
8,353,949 13,382,760
Interest earned but not received - 58,750
8,353,949 13,441,510
Summarised below is the movement of available for sale financial assets: Restated
2,010 2,009
US$ US$
Balance at the beginning of the year 13,382,760 15,902,967
Additions 308,165 3,090,622
Disposals (4,617,136) (4,480,000)
Change in fair value (719,840) (1,130,829)
8,353,949 13,382,760
The provision for impairment of available for sale financial assets amounted to US$ 1,879,400 at 31 December 2010. (31 December 2009 - US$ 1,879,400).
2010 2009
US$ US$
Balance at the beginning of the year 43,495,426 39,809,070
Additions 10,279,905 6,707,513
Maturities (500,000) (3,048,800)
Amortisation 35,134 27,643
53,310,465 43,495,426
Notes To The Financial StatementsArab Reinsurance Company SAL (Inter-Arab Company)
Year Ended December 31, 2010
Restated
2,010 2,009
US$ US$
Pipeline receivables 30,586,423 29,606,004
Due from insurance companies and brokers 5,939,895 8,885,961
Provision for impairment of receivables (1,800,000) (1,800,000)
Deposits with ceding companies 21,555,024 19,818,174
Prepaid expenses 62,626 64,171
Interest receivable 812,213 564,365
Due from employees 205,003 75,475
Other receivables 564,018 384,272
57,925,202 57,598,422
9 Loans and receivables including reinsurance receivables
The carrying amount of loans and receivables approximates their fair values at 31 December 2009 and 2010.
There is no concentration of credit risk with respect to balances due from contract holders, as the Company has a large number of dispensed debtors.
As at 31 December 2009 and 2010, receivables with a carrying value of US$ 1.8 billion (2009 – US$ 1.8 billion) were impaired and fully provided for. All
impaired receivables were overdue more than one year.
As at 31 December 2010, past due but not impaired due from insurance companies is equal to US$ 4.14 million (2009 - US$ 7.08 million).
The interest on deposits with ceding companies amounted to 1.7% (2009- 1.6%).
10 Bank deposits with original maturity of more than 3 monthsBank deposits include deposits that originally mature within 3 months or more as at 31 December 2010 for deposits of a period of not more than 1 year.
The effective interest rate on short-term bank deposits amounted to 5.64% (2009 - 5.81%).
11 Cash and cash equivalents
2010 2009
US$ US$
Bank deposits 56,647,545 52,953,147
Cash on hand 1,264 -
Bank current accounts 2,673,377 2,983,232
2,674,641 2,983,232
Notes To The Financial StatementsArab Reinsurance Company SAL (Inter-Arab Company)
Year Ended December 31, 2010
Restated
2010 2009
US$ US$
Balance at beginning of the year – as reported 1,963,213 832,384
Restatement of prior years (1,879,400) (1,879,400)
Balance at beginning of the year - restated 83,813 (1,047,016)
Fair value of disposed off investments (618,624) -
Unrealised fair value loss 719,840 1,130,829
185,029 83,813
12 Fair value reserveBelow is the movement of the fair value reserve of available for sale financial assets:
13 Share capitalAt 31 December 2010, the share capital is comprised of 60,000,000 authorised and fully paid shares with a par value of US$ 1 each. (2009- 50,000,000 authorised
and fully paid shares with a par value of US$ 1 each).
The extraordinary general assembly approved the increase of capital of US$ 10,000,000 on 20 May 2010. The extraordinary general assembly convened on 17
December 2010 and approved the proper underwriting of the increase in capital.
14 Legal reserveAccording to Article 60 of the Company's by-laws, 10% of the annual net profit should be transferred to a capital reserve until the total of this reserve becomes
equal to the Company's capital. This reserve includes the legal reserve required according to Article 165 of the Lebanese Code of Commerce. This reserve is not
available for distribution to shareholders.
15 Dividends paidOn 20 May 2010 (2009 – 30 May 2009) the general assembly of shareholders approved the distribution of US$ 5 million to all shareholders. (2009 - US$ 5
million).
16 Insurance contracts and reinsurance assets Restated
2010 2009
US$ US$
General insurance contracts
Outstanding claims 70,120,412 61,297,510
Unearned premiums provision 25,824,680 29,110,338
Claims incurred but not reported 8,831,731 14,932,626
Total insurance liabilities, gross 104,776,823 105,340,474
Recoverable from reinsurers
Outstanding claims 15,488,731 11,698,228
Unearned premiums provision 5,469,307 7,833,781
20,958,038 19,532,009
Net
Outstanding claims 54,631,681 49,599,282
Unearned premiums provision 20,355,373 21,276,557
Claims incurred but not reported 8,831,731 14,932,626
83,818,785 85,808,465
Notes To The Financial StatementsArab Reinsurance Company SAL (Inter-Arab Company)
Year Ended December 31, 2010
16.1 Development claims tablesThe development of insurance liabilities provides a measure of the Company's ability to estimate the ultimate value of claims. The top half of each table below
illustrates how the Company's estimate of total claims outstanding for each underwriting year has changed at successive year-ends. The bottom half of the tables
reconciles the cumulative claims to the amount appearing in the balance sheet. An underwriting-year basis is considered to be most appropriate for the business written
by the Company.
Underwriting year 2005 2006 2007 2008 2009 2010 Total
US$ US$ US$ US$ US$ US$ US$
Estimate of ultimate claims costs:
- at end of accident year 18,255,791 19,733,441 29,706,512 35,760,403 26,797,229 23,358,204 153,611,580
- one year later 28,410,853 32,829,145 44,376,075 51,845,003 40,604,780 - 198,065,856
- two years later 29,587,381 34,595,523 46,920,283 54,421,975 - - 165,525,162
- three years later 30,037,925 31,970,130 47,736,002 - - - 109,744,057
- four years later 30,121,959 36,026,194 - - - - 66,148,153
- five years later 30,192,634 - - - - - 30,192,634
Current estimate of cumulative claims 30,192,634 36,026,194 47,736,002 54,421,975 40,604,780 23,358,204 232,339,789
Current payment to date (27,323,587) (28,648,820) (37,506,721) (39,114,794) (19,201,451) (5,753,224) (157,548,597)
Liability recognised in the balance sheet 2,869,047 7,377,374 10,229,281 15,307,181 21,403,329 17,604,980 74,791,192
Liability in respect of prior years' 4,160,951
Total liability included in the balance sheet 78,952,143
17 Retirement benefit obligationThe Company computed the retirement benefit obligation in accordance with IAS 19 using the projected unit credit method as of 31 December 2010. By using this
method, the company determined the future years of service for employee, for and his expected future increase in income. The average increase in salary is around 6%
(2009-6%) and the increment increase is 8% (2009-6%).
The movement in the provision recognised in the balance sheet is as follows:
2010 2009
US$ US$
At beginning of year 126,977 165,314
Provision charged to income statement (note 24) 58,072 -
Utilised during the year - (38,337)
At end of year 185,049 126,977
Notes To The Financial StatementsArab Reinsurance Company SAL (Inter-Arab Company)
Year Ended December 31, 2010
18 Accounts Payable2010 2009
US$ US$
Current account with insurance companies reinsurers and brokers 7,780,279 5,771,448
NSSF and other taxes payable 92,208 104,444
Deposits to reinsurance companies 9,412,151 12,605,381
Accrued expenses 160,509 83,594
Other liabilities 1,718,517 1,740,155
19,163,664 20,305,022
19 Net insurance premium revenueRestated
2010 2009
US$ US$
Insurance contracts
Insurance premium revenue 53,672,397 55,353,719
Change in unearned premium provision 3,285,658 5,449,860
Insurance premium revenue 56,958,055 60,803,579
Insurance premium revenue ceded to reinsurers 9,772,417 13,024,396
Change in reinsurance share of unearned premium provision 2,364,474 1,711,482
Insurance premium revenue ceded to reinsurers 12,136,891 14,735,878
Net reinsurance premium revenue 44,821,164 46,067,701
2010 2009
US$ US$
Interest on bank deposits 2,893,350 3,348,206
Interest on debt securities 3,875,945 3,654,144
Gain on sale of available for sale financial assets 327,317 4,918
Interest from commercial banks 66,048 12,115
Amortisation of premium (580) (437,026)
Other income 5,259 2,664
interest income from cedants' deposits 348,402 313,684
7,515,741 6,898,705
20 Investment income
21 Reinsurance commission income and profit sharingRestated
2010 2009
US$ US$
Insurance contracts
Reinsurance commission income and profit sharing 2,573,140 3,686,802
Unearned reinsurance commissions at beginning of year 2,782,195 3,417,388
Unearned reinsurance commissions at end of year (1,916,867) (2,782,195)
3,438,468 4,321,995
Notes To The Financial StatementsArab Reinsurance Company SAL (Inter-Arab Company)
Year Ended December 31, 2010
22 Insurance claims and loss adjustment expense
23 Expenses for acquisition of insurance contracts
24 Expenses for administration
Restated
2010 2009
US$ US$
Insurance contracts
Gross paid claims 40,334,118 50,829,356
Change in the provision for outstanding claims and IBNR 2,722,007 (7,209,952)
Insurance claims and loss adjustments expenses 43,056,125 43,619,404
Reinsurance share of paid claims 8,892,710 14,783,004
Change in reinsurer' share of outstanding claims and IBNR 3,790,503 (7,204,382)
Reinsurer' share of incurred claims 12,683,213 7,578,622
Insurance claims net of reinsurance 30,372,912 36,040,782
Restated
2010 2009
US$ US$
Commission paid 14,409,597 14,426,182
Deferred acquisition costs at beginning of year 8,292,955 10,100,630
Deferred acquisition costs at end of year (7,569,091) (8,292,955)
Total expenses for the acquisition of insurance contracts 15,133,461 16,533,857
2010 2009
US$ US$
Employee benefit expense (note 25) 1,697,826 1,670,550
Depreciation (note 5) 156,175 158,094
Utilities 157,693 149,171
Professional fees 255,187 90,111
Maintenance and repairs expenses 76,165 77,175
Rent 97,565 79,718
Other taxes 173,572 58,401
Other administrative expenses 487,433 336,189
Board of director's attendance fees 401,363 256,667
Board of director's expenses 190,406 223,967
Negative difference of exchange 257,168 350,756
Total administrative expenses 3,950,553 3,450,799
Less: Arab Re Pool expenses (516,331) (472,472)
3,434,222 2,978,327
Notes To The Financial StatementsArab Reinsurance Company SAL (Inter-Arab Company)
Year Ended December 31, 2010
25 Employee benefit expense
26 Other operating income
27 Income TaxThe Company pays taxes on the basis of 15% of the net profits calculated based on 50% of the premium underwritten in Lebanon.
The income tax is comprised of the following
2010 2009
US$ US$
Salaries and wages 1,383,579 1,412,117
National social security costs 178,979 183,860
End of service indemnity costs (note 17) 58,072 -
Other staff costs 77,196 74,573
1,697,826 1,670,550
2010 2009
US$ US$
Rent income 105,683 142,803
Commission from Arab Re pool 464,947 538,209
Other income - 373,404
Income related to Arab Re pool (note 14) (516,331) (472,472)
54,299 581,944
2010 2009
US$ US$
Income tax on profits 86,822 59,928
Other taxes 36,048 52,989
122,870 112,917
The insurance revenues subject to income tax are comprised of the following:
Open tax years that are subject to examination and acceptance by the fiscal authorities comprise the financial years 2009 & 2010.
Gross premiums written in Lebanon 5,661,982 6,451,162
Commissions received on ceded premiums 484,027 659,823
Other income 1,393,292 879,415
7,539,301 7,990,400
Assumed profit at a weighted average
rate of 7.67% (2009 – 5%) 578,813 399,520
Tax rate 15% 15%
86,822 59,928
Notes To The Financial StatementsArab Reinsurance Company SAL (Inter-Arab Company)
Year Ended December 31, 2010
28 Related parties
The related parties are comprised of the board of directors. Related parties transactions are summarised as follows:
29 Cash from operating activitiesRestated
2010 2009
US$ US$
Cash flow from operating activities Note
Profit before tax 6,889,077 2,317,379
Adjustments for:
Depreciation 5, 6 156,177 158,094
Amortisation (35,134) (27,643)
(Gain) loss from sale of available for sale of financial assets (326,737) 432,108
Gain from sale of equipment - (783)
Interest income (7,124,830) (7,328,149)
Net decrease in insurance contracts (563,651) (12,659,812)
(Increase) decrease in reinsurance assets (1,426,029) 8,915,864
Decrease in deferred acquisition cost 723,864 1,807,675
(Increase) decrease in insurance receivable (78,932) 3,108,828
Increase (decrease) in retirement benefit obligation 58,072 (38,337)
(Decrease) increase in accounts payable (1,141,358) 360,783
Decrease in unearned reinsurance commission (865,328) (635,193)
Net cash used in operations (3,734,809) (3,589,186)
Income tax paid (95,870) (156,719)
Net cash used in operating activities (3,830,679) (3,745,905)
30 Change in the accounting policies and restatement of prior years
The effect of change in accounting policies on the retained earnings is summarised below: 2009 2008 & before
US$ US$
Deferred acquisition cost (1,807,675) 10,100,630
Unearned reinsurance commission 635,193 (3,417,388)
Recognition of revenues and claims not yet received (1,283,782) (4,953,680)
Total effect on retained earnings (2,456,264) 1,729,562
Restatement related to prior years:
2,009 2,008
US$ US$
Provision for impairment of available for sale financial assets - (1,879,400)
2010 2009
US$ US$
Board of directors remuneration and bonus 401,363 256,667
Shareholders
Lebanon
Bahrain
Syria EgyptSaudi Arabia
Algeria UAETunisia Yemen
Morocco
SudanIraq Jordan
Libya Kuwait
Saudi Arabia
• Sheikh Khaldoun Barakat
•Trade Union Insurance Co.
• SAUDI FOR TRADING EST/SATRA
• Gulf Cooperation Insurance Co.
•••
Capital - Riyadhالرياض العاصوت
Population الكثافت السكاًيت 27,601,038
Total Area 2,149,670 sq km الوساحت
Currency - Riyalريال العولت
Int’l Phone Code فخح الخط الذولي 966+
GMT فارق الخوقيج عي جريٌيخش 3+
•
Lebanon
• La Phenicienne Co. d'Assurance
• General Insurance Company for the Near East –
Al Ittihad Al Watani
• United Commercial Assurance
• Saudi Arabian Insurance Company
• Arabia Insurance Co.
• Banque Misr Liban
• Middle East Assurance & Reinsurance Co. (Mearco)
• Amana Insurance Co.
•Tannous Feghali
•–
•
••••••
Capital - Beirutبيروث العاصوت
Population الكثافت السكاًيت 3,925,502
Total Area 10,452 sq km الوساحت
Currency - Liraالليرٍ العولت
Int’l Phone Code فخح الخط الذولي 961+
GMT فارق الخوقيج عي جريٌيخش 2+
•
Syria
• Syrian Insurance Co. •
Capital - Damascusدهشق العاصوت
Population 19,314,747 الكثافت السكاًيت
Total Area 185,180 sq km الوساحت
Currency - Liraليرة العولت
Int’l Phone Code فخح الخط الذولي 963+
GMT فارق الخوقيج عي جريٌيخش 2+
Egypt
••
• Misr Insurance Company
• Misr for Insurance Life
Capital - Cairoالقاُرة العاصوت
Population 80,335,036 الكثافت السكاًيت
Total Area 1,001,450 sq km الوساحت
Currency - EGPجٌيَ العولت
Int’l Phone Code فخح الخط الذولي 20+
GMT فارق الخوقيج عي جريٌيخش 2+
Libya
Capital - Tripoliطرابلس العاصوت
Population 6,036,914 الكثافت السكاًيت
Total Area 1,759,540 sq km الوساحت
Currency - Dinarديٌار العولت
Int’l Phone Code فخح الخط الذولي 218+
GMT فارق الخوقيج عي جريٌيخش 2+
• Libya Insurance Co. SPL •
Kuwait
•••
• Gulf Insurance Co.
• Kuwait Investment Authority
• Al Ahleia Insurance Co.
Capital - Kuwaitالكويج العاصوت
Population 2,505,559 الكثافت السكاًيت
Total Area 17,820 sq km الوساحت
Currency - Dinarديٌار العولت
Int’l Phone Code فخح الخط الذولي 965+
GMT فارق الخوقيج عي جريٌيخش 3+
Morocco
• Societe Centrale de Reassurance
• La Mutuelle Agricole Marocaine D'Assurances (MAMDA)••
Capital - Rabatالرباط العاصوت
Population 33,757,175 الكثافت السكاًيت
Total Area 446,550 sq km الوساحت
Currency - Dirhamدرُن العولت
Int’l Phone Code فخح الخط الذولي 212+
GMT فارق الخوقيج عي جريٌيخش 0+
Iraq
••–
•
• Iraq Reinsurance Co.
• National Insurance Co.
• Iraq Insurance Co.
Capital - Baghdadبغذاد العاصوت
Population 27,499,638 الكثافت السكاًيت
Total Area 437,072 sq km الوساحت
Currency - Dinarديٌار العولت
Int’l Phone Code فخح الخط الذولي 964+
GMT فارق الخوقيج عي جريٌيخش 3+
Tunis
Capital - Tunisحوًس العاصوت
Population 19,314,747 الكثافت السكاًيت
Total Area 163,610 sq km الوساحت
Currency - Dinarديٌار العولت
Int’l Phone Code فخح الخط الذولي 216+
GMT فارق الخوقيج عي جريٌيخش 1+
• Societe Tunisienne de Reassurance
• Societe Tunisienne d'Assurance et de Reassurance
• COMAR Assurances
• Groupe des Assurances de Tunisie
• ASTREE Compangnie d’Assurance et de Reassurance
• Mutuelle Generale d'Assurances
• Ministere de Finance - Direction des Assurances
• Cie. d'Assurance et de Reassurance Tuniso-Europeenne
•••••••–
•
Algeria
• Compagnie Centrale de Reassurance •
Capital - Algeriaالجزائر العاصوت
Population 33,333,216 الكثافت السكاًيت
Total Area 2,381,740 sq km الوساحت
Currency - Dinarديٌار العولت
Int’l Phone Code فخح الخط الذولي 213+
GMT فارق الخوقيج عي جريٌيخش 0+
Jordan
Capital - Ammanعواى العاصوت
Population 6,053,193 الكثافت السكاًيت
Total Area 89,210 sq km الوساحت
Currency - Dinarديٌار العولت
Int’l Phone Code فخح الخط الذولي 962+
GMT فارق الخوقيج عي جريٌيخش 2+
•••••••
••
• AL MANARA Insurance
• Holy Land Insurance Co.
• Arab Union Int’l Insurance Co.
• The United Insurance Co.
• Middle East Insurance Co.
• Jerusalem Insurance Co.
• Arab Bank
• Jordan Insurance Co.
• The National Ahlia Insurance Co.
Bahrain
• Bahrain National Holding Co. •
Capital - Manamaالوٌاهت العاصوت
Population 708,573 الكثافت السكاًيت
Total Area 665 sq km الوساحت
Currency - BHDديٌار العولت
Int’l Phone Code فخح الخط الذولي 973+
GMT فارق الخوقيج عي جريٌيخش 3+
United Arab Emirates
Capital - Abu Dhabiأبوظبي العاصوت
Population 4,444,011 الكثافت السكاًيت
Total Area 82,880 sq km الوساحت
Currency - AEDدرُن العولت
Int’l Phone Code فخح الخط الذولي 971+
GMT فارق الخوقيج عي جريٌيخش 4+
•Al Ain Ahlia Insurance Co. PSC
• Sharjah Insurance Co. PSC
••
Sudan
• The National Reinsurance Co. •
Capital - Khartoumالخرطوم العاصوت
Population 39,379,358 الكثافت السكاًيت
Total Area 2,505,810 sq km الوساحت
Currency - Dinarديٌار العولت
Int’l Phone Code فخح الخط الذولي 249+
GMT فارق الخوقيج عي جريٌيخش 3+
Yemen
• Yemen Insurance & Reinsurance Co. •
Capital - Sana'aصٌعاء العاصوت
Population 22,230,531 الكثافت السكاًيت
Total Area 527,970 sq km الوساحت
Currency - YERريال العولت
Int’l Phone Code فخح الخط الذولي 967+
GMT فارق الخوقيج عي جريٌيخش 3+