2005
Annual Report
C o n t e n t s
Abo ut IG I
D ir ect o rs & Of fi ce rs
Le tte r from the Board of Di re ct o rs
F in an cia l S tateme nts
Audi to r’ s Repo rt
B a la nc e S heet
St at em ent of Income
St at em ent of Cash Flo ws
St at em ent of Chan ge s i n Equi ty
No tes to the Financi al State me n ts
3
5
7
11
13
14
15
16
17
17
2
A b o u t I G I
IGI is incorporated in the Hashemite
Kingdom of Jordan under the Tax Exempt
provision of Jordan’s laws and operates
from its headquarters in Amman.
It commenced operations in 2002 and has
subsequently attained a rating of BBB
(stable outlook) from Standard & Poor’s.
The Company’s total assets are in excess
of US$ 240 million.
IGI underwrites worldwide facultative
direct and reinsurance business with a
geographical focus on the Middle Eastern,
Far Eastern and African markets.
IGI’s core business is energy, marine and
commercial/industrial property.
4
D i r e c t o r s & O f f i c e r s
Board of Directors
Mr. Majid Al Ghurair
Chairman
Mr. Wasef Jabsheh
Vice Chairman & Chief Executive Officer
Mr. Akbar Habib
Mr. Amir Abu Ghazaleh
Mr. Khalifa Almulhem
Director
Director
Director
Mr. Mohammed Abu Ghazaleh
Director
Mr. Rateb Wazani
Director
Corporate Officers
Wasef Jabsheh
Vice Chairman & Chief Executive Officer
Paul Munday
President & Chief Underwriter
Waleed Jabsheh
Executive Vice President
Rachel Butler
Vice President – Claims
Mark Jeffrey
Vice President – Reinsurance
David Johnston
Vice President - Engineering
6
L e t t e r f r o m t h e B o a r d o f D i r e c t o r s
IGI’s fourth year of trading has continued to build profitably on the solid foundation laid since
operations commenced in April 2002. We would like to thank you all for your continued and
loyal support.
IGI is now acceptable security to all the major broking houses and we have continued to
expand our client base in-line with planned targets.
Market conditions have been greatly affected by the unprecedented catastrophic losses of
2005. Insured losses from hurricanes Katrina, Rita and Wilma are currently estimated at
US$ 65 billion. For a number of insurers these losses have had both a capital and earnings
impact. We are pleased to report that despite the worst recorded year in the (re)insurance
industry’s history, IGI is delivering another profitable year. The effects of these losses have
resulted in enhanced trading conditions for the energy, property and reinsurance markets.
Critical key plan objectives were successfully achieved during 2005. In August of last year, IGI
raised an additional US$ 75 million of capital through a private placement in the region. We
are pleased to report that this offer was oversubscribed. The Board would like to thank the
new investors for their confidence in IGI and we take great encouragement in being
supported by such a sophisticated group of shareholders.
Concurrent with this, IGI also attained an interactive rating from Standard & Poor’s of ‘BBB’
(stable outlook). Whilst this rating has been of assistance in developing our book of
profitable, well-managed business, we are determined to achieve an ‘excellent’ rating as soon
as possible.
During 2005, IGI has expanded its existing underwriting and management capabilities with
the appointment of Mr. Mark Jeffrey as Vice President of Reinsurance to develop a new
portfolio, and Mr. David Johnston as Vice President of Engineering to expand this area of the
account. We are looking to further diversify our product range and expand our underwriting
team during the course of the year ahead.
8
In April 2006, IGI received its license to underwrite via its newly formed Labuan branch. This
separately capitalized company will serve not only to provide greater access to business oppor-
tunities from the growing Malaysian economy, but also to the wider Far East region.
IGI has recently established a holding company, International General Insurance Holdings LLC
(IGIH) in the Dubai International Financial Centre (DIFC) and it is our intention to publicly list
the Company later this year. This listing will bring further opportunities in an area which is
rapidly becoming the financial centre of the Middle East.
As a consequence of the corporate restructuring, regulatory considerations required Mr. Wasef
Jabsheh to stand down as Chairman of IGI. Mr. Jabsheh has now taken up the position of Vice
Chairman and Chief Executive Officer; continuing his endeavors to build the Company into a
pre-eminent (re)insurer of choice for the region. Mr. Majid Al Ghurair was elected as Chairman
of the Board.
Saudi United Insurance Company, in which IGI is a joint equity partner, has received approval
for its license from the Saudi Arabian Monetary Authority and is awaiting Sovereign decree in
order to commence operations.
Turning to the year under review, the highlights of our results are as follows:
• Gross written premium has increased by 135% from US$ 24.49 million to US$ 54.87 million,
whilst net earned premium increased by 85% to US$ 35.85 million.
• Net underwriting profit was US$ 621,727 compared with US$ 5.43 million last year, a
noteworthy achievement given the unprecedented losses.
• Investment income was strong at US$ 9.83 million against US$ 2.31 million the previous year.
• Net income increased to US$ 7.63 million from US$ 6 million.
• Total assets are now in excess of US$ 240 million up from last year’s total of US$ 96 million.
The continued success of IGI is largely a result of our focus on disciplined underwriting and
sound management.
The Board would like to thank all employees for their excellent contribution during the last
year. We have the utmost confidence for the future as IGI continues to build its professional
team and expands into new segments. The Board of IGI would like to reiterate its thanks to
you all for your valued support and loyalty.
10
F i n a n c i a l S t a t e m e n t s
Financial Statements
INTERNATIONAL GENERAL INSURANCE COMPANY LIMITED
FINANCIAL STATEMENTS
31 March 2006
To the Partners of International General Insurance Company (Exempt Company)
Amman - Jordan
We have audited the accompanying balance sheet of International General Insurance Company
Limited (Exempt Company) as of 31 March 2006 and the related statements of income, cash flows and
changes in equity for the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with the International Standards on Auditing. Those Standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements present fairly, in all material respects, the financial position of
the Company as of 31 March 2006 and the results of its operations and its cash flows for the year then
ended in accordance with International Financial Reporting Standards.
Ernst & Young
Amman – Jordan
17 May 2006
Balance Sheet
31 March 2006
ASSETS
Notes
Premises and equipment
Intangible assets, net
Investment in associated companies
Deferred policy acquisition costs
Available-for-sale investments
Receivables arising from insurance contracts
Other receivables
Reinsurers’ share of unexpired risks
Reinsurers’ share of outstanding claims
Trading investments
Cash and short term deposits
Total assets
EQUITY AND LIABILITIES
Equity
Share capital
Additional paid in capital
Statutory reserve
Special reserve
Cumulative changes in fair values
Retained earnings
Total equity
LIABILITIES
Liabilities arising from insurance contracts
Unexpired risks
Outstanding claims
Reinsurance payable
Reinsurance premium deposit
Other liabilities
Deferred ceded commission
Total liabilities
Total equity and liabilities
3
4
5
20
6
7
8
9
10
11
12
13
15
16
17
The attached notes 1 to 28 form part of these financial statements.
2006 USD
2,74,764
119,196
8,380,129
6,354,144
72,837,881
27,447,918
450,118
4,910,283
27,158,704
5,084,530
90,212,235
243,229,902
2005 USD
(Restated)
198,569
66,341
8,250,780
2,805,047
31,721,552
10,729,550
492,974
2,877,615
3,203,127
-
38,849,733
99,195,288
2,556,172
71,602,279
1,716,242
48,591,549
6,273,856
13,978,464
144,718,562
1,408,451
-
953,490
48,591,549
7,297,917
7,863,701
66,115,108
38,825,149
40,214,824
79,039,973
13,132,106
5,644,928
291,511
402,822
98,511,340
243,229,902
17,198,152
8,870,034
26,068,186
3,340,595
3,197,253
168,770
305,376
33,080,180
99,195,288
14
Income Statement
Year ended 31 March 2006
Insurance premium revenue
Insurance premium ceded to reinsurers
Net insurance premium revenue
Claims
Reinsurers’ share of claims
Policy acquisition costs
NET UNDERWRITING RESULT
Investment income
Net realised gains on available-for-sale investments
Income from associated companies
Gain from trading investments
General and administrative expenses
(Loss)gain on exchange
Profit for the year
Notes
18
18
19
19
20
21
22
5
The attached notes 1 to 28 form part of these financial statements.
2006 USD
35,852,793
(17,758,372)
18,094,421
(38,273,325)
25,976,514
(5,175,883)
621,727
2,548,214
2,434,010
359,952
4,577,629
(2,819,803)
(94,214)
7,627,515
2005 USD
(Restated)
19,365,753
(7,392,733)
11,973,020
(6,010,424)
2,040,786
(2,569,317)
5,434,065
1,115,486
851,060
302,546
-
(1,755,261)
80,830
6,028,726
Statement of Cash Flows
Year ended 31 March 2006
OPERATING ACTIVITIES
Notes
2006 USD
2005 USD
3,4
22
21
Profit for the year
Adjustments for:
Depreciation and amortization
Profit on sale of premises and equipment
Net gains on disposal of available-for-sale investments
Unrealized gain from trading investments
Investment income
Gain from foreign exchange
Income from associated companies
Reinsurers’ share of unexpired risks
Movement in unearned premiums
Movement in outstanding claims
Operating profit before changes in operating assets and liabilities
Deferred policy acquisition costs
Receivables arising from insurance contracts
Other receivables
Reinsurers’ share of outstanding claims
Deferred ceded commission
Trading investments
Other liabilities
Net cash from operating activities
INVESTING ACTIVITIES
Purchase of premises and equipment
Proceeds from disposal of premises and equipment
Purchase of intangible assets
Purchase of available-for-sale investments
Proceeds from sale of available-for-sale investments
Dividends received from associates
Investment income
FINANCING ACTIVITIES
Dividends paid
Increase in capital and additional paid in capital
Net cash from (used in) financing activities
Increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The attached notes 1 to 28 form part of these financial statements.
3
13
22
22
7,627,515
6,028,726
86,047
-
(2,434,010)
(4,371,907)
(2,548,214)
14,682
(359,952)
(2,032,668)
21,626,997
31,344,790
48,953,280
(3,549,097)
(16,718,368)
42,855
(23,955,577)
97,446
(712,623)
12,361,927
16,519,843
(138,991)
-
(76,105)
(45,496,007)
5,774,945
230,603
2,548,214
(37,157,341)
(37 157 341)
61,432
(33)
(851,060)
-
(1,115,486)
(21,339)
(302,546)
150,987
5,119,273
3,010,790
12,080,744
(1,064,822)
(2,876,648)
(448,813)
(1,335,970)
(74,646)
-
3,415,460
9,695,305
(82,542)
593
(19,766)
(7,667,599)
3,229,343
261,556
1,115,486
(3,162,929)
(3 162 929)
(750,000)
72,750,000
72,000,000
51,362,502
18,849,733
70,212,235
(750,000)
-
(750,000)
)
(
5,782,376
13,067,357
18,849,733
16
Statement of Change in Equity
Year ended 31 March 2006
Balance as 1 April 2004
Recognised gains and losses on
available-for-sale investments during the year
Net movement in fair value of
available-for-sale investments during the year
Total income and expenses for the year
recognised directly in equity
Profit for the year
Total income and expenses for the year
Dividends paid
Appropriations to statutory reserve
Balance as of 31 March 2005 (Restated)
Recognised gains and losses on
available-for-sale investments during the year
Net movement in fair value of
available-for-sale investments during the year
Total income and expenses for the year
recognised directly in equity
Profit for the year
Total income and expenses for the year
Increase in capital
Dividends paid
Appropriations to statutory reserve
Balance as of 31 March 2006
Paid-in
capital
USD
Additional
paid-in capital
USD
Statutory
reserve
USD
Special
reserve
USD
Cumulative
change in
fair value
USD
Retained
earnings
USD
Total USD
1,408,451
-
-
-
-
-
-
-
1,408,451
-
-
-
-
-
-
-
-
-
-
-
-
-
354,716
48,591,549
2,493,290
3,183,749
56,031,755
-
-
-
-
-
-
-
-
598,774
953,490
-
-
-
-
-
48,591,549
(141,317)
4,945,944
4,804,827
-
4,804,827
-
-
7,297,917
-
-
(141,317)
4,945,944
-
6,028,726
6,028,726
(750,000)
(598,774)
7,863,701
4,804,827
6,028,726
10,833,353
(750,000)
-
66,115,108
-
-
-
-
(2,434,010)
1,409,949
-
-
(2,434,010)
1,409,949
-
-
-
1,147,721
-
-
2,556,172
-
-
-
71,602,279
-
-
71,602,279
-
-
-
-
-
762,752
1,716,242
-
-
-
-
-
-
48,591,549
(1,024,061)
-
(1,024,061)
-
-
-
6,273,856
-
7,627,515
7,627,515
-
(750,000)
(762,752)
13,978,464
(1,024,061)
7,627,515
6,603,454
72,750,000
(750,000)
-
144,718,562
The attached notes 1 to 28 form part of these financial statements.
1 ACTIVITIES
International General Insurance Limited is a limited liability company registered as an Exempt Company
and incorporated in Jordan under the Exempt Companies Provision of Jordanian Companies Laws on
4 October 2001. The Company writes short-term non-life insurance contracts covering marine, energy
and property insurance business worldwide. International General Insurance Limited’s registered head
office is at 47 Al-Ameer Shaker Bin Zeid Street, Shmeisani, Amman, Jordan.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation
The financial statements have been prepared in accordance with International Financial Reporting
Standards (IFRS).
Notes to the Financial Statements
31 March 2006
The financial statements have been presented in United States Dollars (USD), which is the Company’s
measurement currency.
The financial statements are prepared under the historical cost convention modified to include the
measurement at fair value of available-for-sale investments.
Changes in accounting policies
The accounting policies are consistent with those used in the previous year except that the Company
has adopted those new/revised standards that are mandatory for financial years beginning on or
after 1 January 2005. The principal effects of this decision discussed below.
IFRS ‘4 Insurance Contracts’
The adoption of IFRS 4 has affected disclosures with respect to insurance contracts issued and reinsur-
ance contracts held. All comparative disclosures have been amended accordingly.
Investments in associated companies
In accordance with IAS 28, investment in associated companies, the Company should use the equity
method for the investments in associated companies, while the Company used to use the cost
method for these associated companies. The effect of the adjustment, and the reclassifications on the
financial statements for the year ended 31 March 2005 is illustrated in note 28.
Premiums earned
Premiums are taken into income over the terms of the policies to which they relate on a pro-rata
basis. Unearned premiums represent the portion of premiums written relating to the unexpired
period of coverage. The change in the provision for unearned premiums is taken to the income
statement in order that revenue is recognised over the period of risk.
Claims
Claims, comprising amounts payable to contract holders and third parties and related loss adjustment
expenses, net of salvage and other recoveries, are charged to income as incurred. Claims comprise
the estimated amounts payable, in respect of claims reported to the Company and those not
reported at the balance sheet date.
The Company generally estimates its claims based on previous experience. Independent loss adjusters
normally estimate property claims. In addition a provision based on management’s judgement and
the company’s prior experience is maintained for the cost of settling claims incurred but not reported
at the balance sheet date. Any difference between the provisions at the balance sheet
18
Notes to the Financial Statements
31 March 2006
date and settlements and provisions for the following year is included in the underwriting account for
that year.
Policy acquisition costs
Commissions paid to intermediaries and other direct costs incurred in relation to the acquisition and
renewal of insurance contracts are capitalised as an intangible asset. The deferred policy acquisition costs
are subsequently amortised over the terms of the insurance contracts to which they relate as premiums
are earned.
Liability adequacy test
At each balance sheet date the Company assesses whether its recognised insurance liabilities are
adequate using current estimates of future cash flows under its insurance contracts. If that assessment
shows that the carrying amount of its insurance liabilities (less related deferred policy acquisition costs) is
inadequate in the light of estimated future cash flows, the entire deficiency is immediately recognised in
income and an unexpired risk provision created.
The Company does not discount its liability for unpaid claims as substantially all claims are expected to be
paid within one year of the balance sheet date.
Reinsurance contracts held
In order to minimise financial exposure from large claims the Company enters into agreements with other
parties for reinsurance purposes. Claims receivable from reinsurers are estimated in a manner consistent
with the claim liability and in accordance with the reinsurance contract. These amounts are shown as
“reinsurers’ share of outstanding claims” in the balance sheet until the claim is paid by the Company.
Premiums on reinsurance assumed are recognised as revenue in the same manner as they would be if
the reinsurance were considered direct business.
At each reporting date, the Company assesses whether there is any indication that a reinsurance asset
may be impaired. Where an indicator of impairment exists, the Company makes a formal estimate of the
recoverable amount. Where the carrying amount of a reinsurance asset exceeds its recoverable amount
the asset is considered impaired and is written down to its recoverable amount.
Interest revenue
Interest revenue is recognised as the interest accrues using the effective interest method, under which
the rate used exactly discounts estimated future cash receipts through the expected life of the financial
asset to the net carrying amount of the financial asset.
Notes to the Financial Statements
31 March 2006
Dividend revenue
Dividend revenue is recognised when right to receive the payment is established.
Premises and equipment
Premises and equipment is stated at cost less accumulated depreciation and any impairment in value.
Deprecation is calculated on a straight-line basis over the estimated useful lives of the assets at rates
ranging between 10% to 20%.
The carrying values of premises and equipment are reviewed for impairment when events or changes in
circumstances indicate the carrying value may not be recoverable. If any such indication exists and where
the carrying values exceed the estimated recoverable amount, the assets are written down to their
recoverable amount. Impairment losses are recognised in the income statement.
Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. Intangible assets with
finite lives are amortised over the useful economic life and assessed for impairment when there is an
indication that the intangible asset may be impaired.
Internally generated intangible assets are not capitalised and are expensed in the income statement.
Intangible assets include computer software and programmes. These intangibles assets are amortised
evenly over their estimated economic useful lives of 5 years.
Impairment and uncollectibility of financial assets
An assessment is made at each balance sheet date to determine whether there is objective evidence that
a specific financial asset may be impaired. If such evidence exists, any impairment loss is recognised in
the income statement. Impairment is determined as follows:
a) For assets carried at fair value, impairment is the difference between cost and fair value;
b) For assets carried at cost, impairment is the difference between cost and the present value of future
cash flows discounted at the current market rate of return for a similar financial asset.
Derecognition of financial instruments
The derecognition of a financial instrument takes place when the Company no longer controls the
contractual rights that comprise the financial instrument, which is normally the case when the instrument
is sold, or all the cash flows attributable to the instrument are passed through to an independent third
party.
20
Notes to the Financial Statements
31 March 2006
Investment in associated companies
These investments in associated companies are carried in the balance sheet at cost plus post – acquisition
changes in the company’s share of net assets of associates, less any impairment in value. The statement of
income reflects the share of the results of the operations of the associates.
Available-for-sale investments
Available-for-sale investments are recognised and derecognised, on a trade date basis, when the Company
becomes, or ceases to be, a party to the contractual provisions of the instrument.
Investments designated as available-for-sale investments are initially recorded at cost and subsequently
measured at fair value, unless this cannot be reliably measured. Changes in fair value are reported as a
separate component of equity. On derecognition or impairment the cumulative gain or loss previously
reported in equity is included in the income statement for the period.
Cash and cash equivalents
For the purpose of the Statement of Cash Flows, cash and cash equivalents consist of cash in hand, bank
balances, and short-term deposits with an original maturity of three months or less, net of outstanding
bank overdrafts.
Provisions
Provisions are recognised when the Company has an obligation (legal or constructive) as a result of a past
event, and the costs to settle the obligation are both probable and able to be reliably measured.
Foreign currencies
Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at
the balance sheet date. All differences are taken to the income statement.
Leases
The Company has no finance leases. Leases where the lessor retains substantially all the risks and benefits
of ownership of the asset are classified as operating leases. Operating lease payments are recognised as an
expense in the income statement on a straight-line basis over the lease term.
Fair values
For investments traded in an active market, fair value is determined by reference to quoted market bid prices.
Notes to the Financial Statements
31 March 2006
The fair value of interest-bearing items is estimated based on discounted cash flows using interest for
items with similar terms and risk characteristics.
For unquoted equity investments, fair value is determined by reference to the market value of a similar
investment or is based on the expected discounted cash flows.
2a SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES
Estimation uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the
balance sheet date, that have a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year are discussed below:
Provision for outstanding claims
Considerable judgement by management is required in the estimation of amounts due to contract
holders arising from claims made under insurance contracts. Such estimates are necessarily based on
significant assumptions about several factors involving varying, and possible significant, degrees of
judgement and uncertainty and actual results may differ from management’s estimates resulting in
future changes in estimated liabilities.
In particular, estimates have to be made both for the expected ultimate cost of claims reported at the
balance sheet date and for the expected ultimate cost of claims incurred but not yet reported (IBNR) at
the balance sheet date. The primary technique adopted by management in estimating the cost of
notified and IBNR claims, is that of using past claim settlement trends to predict future claims settle-
ment trends.
Claims requiring court or arbitration decisions are estimated individually. Independent loss adjusters
normally estimate property claims. Management reviews its provisions for claims incurred, and claims
incurred but not reported, on a quarterly basis.
Reinsurance
The Company is exposed to disputes with, and possibility of defaults by, its reinsurers. The Company
monitors on a quarterly basis the evolution of disputes with and the strength of its reinsurers.
22
Notes to the Financial Statements
31 March 2006
3 PREMISES AND EQUIPMENT
Office furniture
USD
Computers
USD
Equipment
USD
Decorations &
leasehold
improvements
USD
Vehicles
USD
Total USD
Cost
At 1 April 2005
Additions
At 31 March 2006
Depreciation
At 1 April 2005
Additions
At 31 March 2006
Net carrying amount
At 31 March 2006
At 31 March 2005
46,315
21,238
67,553
11,162
5,360
16,522
51,031
35,153
97,921
29,275
127,196
33,929
22,591
56,520
70,676
63,991
37,102
14,915
52,017
10,432
7,071
17,503
34,514
26,670
35,833
15,042
50,875
19,292
8,639
27,931
22,944
16,541
73,083
58,521
131,604
290,254
138,991
429,245
16,869
19,136
36,005
95,599
56,214
91,684
62,797
154,481
274,764
198,569
The depreciation charge for the year of USD 62,797 (2005: USD 44,175) has been included in general
and administrative expenses.
4 INTANGIBLE ASSETS
Cost
At 1 April 2005
Additions
At 31 March 2006
Amortization
At 1 April 2005
Additions
At 31 March 2006
Net book value 2006
Net book value 2005
Intangible assets represent software licenses.
Computer software
101,230
76,105
177,335
34,889
23,250
58,139
119,196
66,341
Notes to the Financial Statements
31 March 2006
5 INVESTMENT IN ASSOCIATED COMPANIES
During July 2002, the Company acquired a 33% equity ownership interest in real estate limited
liabilities companies registered in Lebanon.
The Company has the following investments in associates:
Star Rock SAL Lebanon
Sina SAL Lebanon
Silver Rock SAL Lebanon
Golden Rock SAL Lebanon
Country of
incorporation
Ownership
2006
2005
Lebanon
Lebanon
Lebanon
Lebanon
33%
33%
33%
33%
33%
33%
33%
33%
The following table illustrates summarised information of the Company’s investments in associates:
Share of associates’ balance sheets:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Share of associates’ revenues and results:
Revenues
Results
6 AVAILABLE-FOR-SALE INVESTMENTS
Available-for-sale investments by currency
Jordanian Dinars
US Dollars
Other currencies
2006 USD
2005 USD
1,587,119
14,858,249
(6,900,332)
(1,164,907)
,
8,380,129
,
1,486,201
14,551,579
(6,700,915)
(1,086,085)
8,250,780
600,455
523,278
359,952
302,546
2006 USD
2005 USD
15,659,121
51,576,893
5,601,867
72,837,881
15,281,961
-
16,439,591
31,721,552
24
Notes to the Financial Statements
31 March 2006
The breakdown of the available-for-sale investments is as follows:
Fixed income securities
Unquoted stocks*
Common stock in listed companies
2006 USD
2005 USD
51,266,353
5,601,867
15,969,661
72,837,881
16,170,420
-
15,551,132
31,721,552
Common stocks have no fixed maturity dates and are generally not exposed to interest rate risk.
* Included in unquoted equities are investments carried at cost with value of USD 5,601,867. The investments
were stated at cost since the fair value could not be measured reliably and there is no indication of impairment
in the values as of the balance sheet date.
7 RECEIVABLES ARISING FROM INSURANCE CONTRACTS
Customers
2006 USD
2005 USD
27,447,918
10,729,550
All of the above amounts are due within twelve months of the balance sheet date.
8 OTHER RECEIVABLES
Prepaid expenses
Refundable deposits
Payment on purchase of investment
Employees receivables
Checks under collection
Trade receivables
Others
9 REINSURERS’ SHARE OF OUTSTANDING CLAIMS
Reinsures’ share of outstanding claims
2006 USD
2005 USD
58,510
704
-
87,940
29,967
238,964
34,033
450,118
27,264
704
267,252
89,149
-
81,967
26,638
492,974
2006 USD
2005 USD
27,158,704
3,203,127
Substantially all of the amounts due from reinsurers are expected to be received within twelve
months of the balance sheet date.
Notes to the Financial Statements
31 March 2006
10 CASH AND SHORT-TERM DEPOSITS
Cash and cash equivalents included in the statement of cash flows include the following balance
sheet amounts:
Cash and bank balances
Time deposits
Demand deposit
2006 USD
2005 USD
1,750,552
68,461,683
20,000,000
90,212,235
960,261
17,889,472
20,000,000
38,849,733
The time deposits, which are substantially denominated in Jordanian Dinars, are made for varying
periods of between one week and one month depending on the immediate cash requirements of the
company, and earn interest at the respective short-term deposit rates.
Demand deposits mature on 30 March 2007 and have been excluded from cash and cash equivalents
(note 23).
11 SHARE CAPITAL
Authorised
Issued and fully paid
2006 USD
2005 USD
2006 USD
2005 USD
Shares of JD 1 each (USD 1.408)
2,556,172
1,408,451
2,556,172
1,408,451
The Company issued additional 814,882 shares in private placement on 8 March 2006 at
par value of 1 Jordanian Dinars (equivalent to USD 1,147,721).
12 ADDITIONAL PAID-IN CAPITAL
On 8 March 2006, the Company issued additional 814,882 shares in private placement at
par value of 1 Jordanian Dinars (equivalent to USD 1,147,721) with shares’ premium of
USD 71,602,279.
13 STATUTORY RESERVE
The accumulated amounts in this account represents 10% of the Company’s net income
according to the Companies Law. The Company has the option to cease such appropriation
26
Notes to the Financial Statements
31 March 2006
when the balance of this reserve reaches 100% of the Company’s authorized capital. The statutory
reserve will not be available for distribution to partners.
14 DIVIDENDS PAID
The Board of Directors and partners approved on their meeting held in 1 July 2005 to distribute
interim cash dividends amounting to USD 750,000 (USD 0.532 per share).
15 UNEXPIRED RISKS
Gross USD
2006 Reinsurers’
Share USD
Net USD
Gross USD
2005 Reinsurers’
Share USD
Net USD
Unearned premiums
38,825,149
(4,910,283)
33,914,866
17,198,152
(2,877,615)
14,320,537
Details of the movements of the provision for unearned premiums, and the related reinsurers’
share, are contained in note 18.
16 OUTSTANDING CLAIMS
The movement in the provision for outstanding claims, and the related reinsurers’ share, was as follows:
Gross USD
2006 Reinsurers’
Share USD
Net USD
Gross USD
2005 Reinsurers’
Share USD
Net USD
At 1 April
Claims incurred
Claims incurred but not reported
Insurance claims paid in the year
Provided during the year
At 31 March
Analysis of outstanding claims
At 31 March
Claims incurred
Claims incurred but not reported
7,517,913
1,352,121
8,870,034
(6,928,535)
38,273,325
40,214,824
38,214,824
2,000,000
40,214,824
(3,203,127)
-
(3,203,127)
2,020,937
(25,976,514)
(27,158,704)
4,314,786
1,352,121
5,666,907
(4,907,598)
12,296,811
13,056,120
5,109,235
750,009
5,859,244
(2,999,634)
6,010,424
8,870,034
(1,867,156)
-
(1,867,156)
704,815
(2,040,786)
(3,203,127)
3,242,079
750,009
3,992,088
(2,294,819)
3,969,638
5,666,907
(27,158,704)
-
(27,158,704)
11,056,120
2,000,000
13,056,120
7,517,913
1,352,121
8,870,034
(3,203,127)
-
(3,203,127)
4,314,786
1,352,121
5,666,907
There are no material amounts for which amount and timing of claims payment is not resolved
within one year of the balance sheet date.
Amounts due from reinsurers are normally settled on a quarterly basis.
Notes to the Financial Statements
31 March 2006
17 OTHER LIABILITIES
Accounts payable
Amounts due to related parties (note 24)
Accrued expenses
18 NET INSURANCE PREMIUM REVENUE
Insurance contracts premium receivable
Movement in provision for unearned premiums
Insurance premium revenue
Reinsurance contracts premium payable
Movement in provision for unearned premiums
Insurance premiums ceded to reinsurers
2006 USD
2005 USD
12,554
29,692
249,265
291,511
9,402
28,227
131,141
168,770
2006 USD
2005 USD
57,479,790
(21,626,997)
35,852,793
(19,791,040)
2,032,668
(17,758,372)
18,094,421
24,485,025
(5,119,272)
19,365,753
(7,844,646)
451,913
(7,392,733)
11,973,020
19 CLAIMS
Claims incurred
Change in provision for
outstanding claims
Gross USD
2006 Reinsurers’
Share USD
Net USD
Gross USD
2005 Reinsurers’
Share USD
Net USD
6,928,535
(2,020,937)
4,907,598
2,999,634
(704,815)
2,294,819
31,344,790
38,273,325
(23,955,577)
(25,976,514)
7,389,213
12,296,811
3,010,790
6,010,424
(1,335,971)
(2,040,786)
1,674,819
3,969,638
20 DEFERRED POLICY ACQUISITION COSTS
At 1 April
Additions
Amortisation
At 31 March
2006 USD
2005 USD
2,805,047
8,724,980
(5,175,883)
6,354,144
1,740,225
3,634,139
(2,569,317)
2,805,047
28
Notes to the Financial Statements
31 March 2006
21 INVESTMENT INCOME
Available-for-sale investments
Dividends
Interest
2006 USD
2005 USD
61,707
2,486,507
2,548,214
299,753
815,733
1,115,486
22 NET REALISED GAINS ON AVAILABLE-FOR-SALE INVESTMENTS
Realized gains
Equity securities
2006 USD
2005 USD
2,434,010
851,060
23 CASH AND CASH EQUIVALENTS
Cash and cash equivalent balances in the statement of cash flows consists of the following
balances:
Cash and bank balances
Time deposit mature within 3 months
2006 USD
2005 USD
1,750,552
68,461,683
70,212,235
960,261
17,889,472
18,849,733
24 COMMITMENTS AND CONTINGENCIES
As of the date of the financial statements, the Company is contingently liable to the following:
• Letter of Guarantee amounting to USD 7,042 to the order of the ministry of trade and industry
with margin of USD 704.
• Letter of Credit to USD 9,904,878 to the order of Houston Casualty Company.
The Company has entered into commercial leases on certain apartments and offices where it is not
in the best interest of the Company to purchase these assets. These leases have an average life of
1 year with renewal terms included in the contracts. Renewals are at the option of the company.
Notes to the Financial Statements
31 March 2006
25 RELATED PARTY TRANSACTIONS
Transactions with related party (Eastern Insurance Brokers Company) included in the income
statement are as follows:
Inter Company balance
Commission paid
2006 USD
2005 USD
29,692
32,811
28,227
36,332
Compensation of key management personnel of the company, consisting of salaries and benefits,
was USD 779,426 (2005: USD 781,168).
26 RISK MANAGEMENT
The risks faced by the Company and the way these risks are mitigated by management are
summarised below.
Insurance risk
Insurance risk is the risk that actual claims payable to contract holders in respect of insured events
exceed the carrying amount of insurance liabilities. This could occur because the frequency or
amounts of claims are more than expected. The Company only issues short term insurance
contracts in connection with property and energy (collectively known as fire and accident), and
marine risks.
Frequency and amounts of claims
The frequency and amounts of claims can be affected by several factors. The Company underwrites
mainly fire and accident and marine risks. These are regarded as short-term insurance contracts as
claims are normally property advised and most are settled within one year of the insured event
taking place. This helps to mitigate insurance risk.
Property and energy
Property and energy insurance is designed to compensate contract holders for damage suffered to
properties or for the value of property lost. Contract holders could also receive compensation for
the loss of earnings caused by the inability to use the insured properties.
30
Notes to the Financial Statements
31 March 2006
For property and energy insurance contracts the main risks are fire and business interruption. In
recent years the Company has mostly underwritten policies for properties containing fire detection
equipment.
These contracts are underwritten by reference to the replacement value of the properties and
contents insured. The cost of rebuilding properties and obtaining replacement contents and the time
taken to restart operations which leads to business interruptions are the main factors that influence
the level of claims.
Marine
Marine insurance is designed to compensate contract holders for damage and liability arising through
loss or damage to marine craft and accidents at sea resulting in the total or partial loss of cargoes.
For marine insurance the main risks are loss or damage to marine craft and accidents resulting in the
total or partial loss of cargoes.
The underwriting strategy for the marine class of business is to ensure that policies are well diversified
in terms of vessels and shipping routes covered.
Geographical concentration of risks
Approximately 57%, 10% and 33% of the company’s insurance risk relates to policies written in Asia,
Europe and whole of the world respectively (2005: 53%, 13% and 34%).
Reinsurance risk
In common with other insurance companies, in order to minimise financial exposure arising from
large claims, the company, in the normal course of business, enters into contracts with other parties
for reinsurance purposes. Such reinsurance arrangements provide for greater diversification of
business, allow management to control exposure to potential losses arising from large risks, and
provide additional capacity for growth. A significant portion of the reinsurance is affected under
treaty, facultative and excess-of-loss reinsurance contracts.
To minimise its exposure to significant losses from reinsurer’s insolvencies, the Company evaluates
the financial condition of its reinsurers. The Company only deals with reinsurers approved by the
board of directors, which are generally rated A or above by international rating agencies.
Notes to the Financial Statements
31 March 2006
Financial risk
The Company’s principal financial instruments are available-for-sale investments, receivables arising
from insurance and reinsurance contracts, trading investments and cash and cash equivalents.
The Company does not enter into derivative transactions.
The main risks arising from the Company’s financial instruments are interest rate risk, foreign
currency risk, credit risk, market price risk and liquidity risk. The Board reviews and agrees policies
for managing each of these risks and they are summarised below.
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect future profitability
or the fair values of financial instruments. The Company is exposed to interest rate risk on certain of
its investments and cash and cash equivalents. The Company limits interest rate risk by monitoring
changes in interest rates in the currencies in which its cash and interest bearing investments and
borrowings are denominated.
Details of maturities of the major classes of financial assets are as follows:
Less than 1
year USD
Non-interest
bearing items
USD
Effective
interest rate
%
Total USD
31 March 2006
Available-for-sale investments
Receivables arising from insurance and reinsurance contracts
Other receivables
Time deposits
Demand deposits
Cash
51,266,353
-
-
63,791,388
24,670,295
-
139,728,036
21,571,528
27,447,918
450,118
-
1,750,552
51,220,116
72,837,881
27,447,918
450,118
63,791,388
24,670,295
1,750,552
190,948,152
2-4
-
2-4
1-2
32
Notes to the Financial Statements
31 March 2006
Less than 1
year USD
Non-interest
bearing items
USD
Total USD
Effective
interest rate %
31 December 2005
Available-for-sale investments
Receivables arising from insurance and reinsurance contracts
Other receivables
Time deposits
Demand deposits
Cash
16,170,420
-
-
17,889,472
20,000,000
-
54,059,892
15,551,132
10,729,550
492,974
-
-
960,261
27,733,917
31,721,552
10,729,550
492,974
17,889,472
20,000,000
960,261
81,793,809
2-4
-
2-4
1-2
There is no significant difference between contractual re-pricing or maturity dates.
Foreign currency risk
Foreign currency risk is the risk that the value of a financial instrument will fluctuate due to
changes in foreign exchange rates.
Management believes that there is minimal risk of significant losses due to exchange rate fluctuations
and consequently the Company does not hedge its foreign currency exposure.
Credit risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and
cause the other party to incur a financial loss. For all classes of financial assets held by the Company,
the maximum credit risk exposure to the Company is the carrying value as disclosed in the balance
sheet.
The Company only enters into insurance and reinsurance contracts with recognised, credit worthy third
parties. It is the Company’s policy that all customers who wish to trade on credit terms are subject to
credit verification procedures. In addition, receivables from insurance and reinsurance contracts are
monitored on an ongoing basis in order to reduce the Company’s exposure to bad debts.
The Company’s portfolio is managed by the Vice Chairman and CEO in accordance with the investment
policy established by the Board of Directors.
Notes to the Financial Statements
31 March 2006
The Company’s bank balances are maintained with a range of international and local banks in
accordance with limits set by the Board of Directors.
There are no significant concentrations of credit risk within the Company.
Market price risk
Market price risk is the risk that the value of a financial instrument will fluctuate as a result of
changes in market prices, whether those changes are caused by factors specific to the individual
security, or its issuer, or factors affecting all securities traded in the market.
The Company is exposed to market risk with respect to its listed equity financial instruments.
The Company limits market risk by maintaining a diversified portfolio and by monitoring of
developments in equity markets. The majority of the Company’s equities are listed on the Jordanian
Stock Exchange.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its commitments associated with
insurance contracts and financial liabilities as they fall due.
Liquidity requirements are monitored on a monthly basis and management ensures that sufficient
liquid funds are available to meet any commitments as they arise.
27 SEGMENTAL INFORMATION
For management purposes the Company is organised into five business segments, property, energy,
engineering, reinsurance, and marine. These segments are the basis on which the Company reports
its primary segment information.
An analysis of gross and net insurance premium revenue gross and net claims and policy acquisi-
tion costs together with the net underwriting result for the Company’s main classes of business is
given below.
As the Company’s activities are performed on an integrated basis, a segmental analysis of assets
and liabilities and other income statement captions would not be meaningful.
34
Notes to the Financial Statements
31 March 2006
Energy
Property
2006 USD
000
2005 USD
000
2006 USD
000
2005 USD
000
40,776
14,637
26,139
(13,089)
13,050
(9,254)
(3,546)
250
14,733
5,576
9,157
(4,371)
4,786
(2,693)
(914)
1,179
7,466
1,943
5,523
(2,262)
3,261
(1,214)
(1,055)
992
8,029
(364)
8,393
(2,481)
5,912
(278)
(1,372)
4,262
Income
Gross written premiums
Movement in provision for unearned premiums
Net premium revenue
Insurance premium ceded to reinsurers
Net insurance premium revenue
Claims, net
Policy acquisition costs
Net underwriting result
Investment income
Income from associated companies
Other unallocated costs
Profit for the year
Secondary segment information:
Although the management of the Company is based primarily on business segments, the Company
operates in domestic and international markets. The following table shows the distribution of the
Company’s operating income, total assets and capital expenditure by geographical segment:
Income
Operating income
Interest, dividend income, income from associate and realized gain on sale of investments
Total income
Total assets
Capital expenditure
Notes to the Financial Statements
31 March 2006
Marine
Reinsurance
Engineering
Others
Total
2006 USD
000
2005 USD
000
2006 USD
000
2005 USD
000
2006 USD
000
2005 USD
000
2006 USD
000
2005 USD
000
2006 USD
000
2005 USD
000
4,363
1,348
3,015
(2,385)
630
(1,825)
(399)
(1,594
1,685
(95)
1,780
(541)
1,239
(999)
(264)
(24)
3,187
2,338
849
-
849
(4)
(117)
728
-
-
-
-
-
-
-
-
1,660
1,361
299
(22)
277
-
(51)
226
-
-
-
-
-
-
-
-
28
-
28
-
28
-
(8)
20
38
2
36
-
36
-
(19)
17
57,480
21,627
35,853
(17,758)
18,095
(12,297)
(5,176)
622
9,466
360
(2,820)
7,628
24,485
5,119
19,366
(7,393)
11,973
(3,970)
(2,569)
5,434
2,047
303
(1,755)
6,029
Domestic
International
Total
2006 USD 000
2005 USD 000
2006 USD 000
2005 USD 000
2006 USD 000
2005 USD 000
-
-
7,833
7,833
168,478
215
1,462
1,462
53,084
102
622
1,993
2,615
74,752
-
5,434
888
6,322
46,111
-
622
9,826
10,448
243,230
215
5,434
2,350
7,784
99,195
102
36
Notes to the Financial Statements
31 March 2006
28 COMPARATIVE AMOUNTS
The 2005 figures have been reclassified in order to conform with the presentations in the current
year. Such reclassification does not affect previously reported net profit or equity except as set
below:
The change has been made in light of changes in International Financial Reporting Standards.
In accordance with IAS 8, “Accounting Policies Changes in Accounting Estimates and Errors”, the
financial statements of 2005 have been restated to comply with the IFRS as follows:
Changes in asset
Changes in equity
Profit for the year
2005
After
restatement
Before
restatement
Amount of
change
99,195,288
66,115,108
6,028,726
99,154,288
66,074,118
5,987,736
40,990
40,990
40,990
The changes have been resulted from recording the Company's share of associated companies'
results for the year.
38