International General Insurance Holdings Ltd. Annual Report 2007

Plain-text annual report

C O N T E N T S About IGIH Board of Directors Letter from the Board of Directors Financial Statements Auditors Report Balance Sheet Income Statement Statement of Cash Flows Statement of Changes in Equity Notes to the Financial Statements Corporate Officers IGI Offices 3 5 7 8 9 10 11 12 13 14 38 39 A B O U T I G I H 2007 ANNUAL REPORT 2 International General Insurance Holdings Limited (IGIH) is registered in the Dubai International Financial Centre with operations in Bermuda (IGI Bermuda), the United Kingdom, Jordan and Malaysia. IGI Bermuda is a class 3 (re)insurer regulated by the Bermuda Monetary Authority and is rated A- (“Excellent”) by A.M. Best Company Inc. This subsidiary is the principal underwriting entity for the Group with the Jordan ofﬁce providing all management, underwriting and operational functions. The Group also has a subsidiary company in Labuan, Malaysia registered as a ﬁrst tier reinsurer. IGI Bermuda underwrites a worldwide portfolio of energy, property, marine, engineering, ﬁnancial institutions and non-proportional reinsurance treaty business with the main geographical focus on the Afro-Asian markets IGIH has assets of more than US$ 375 million and total shareholders’ equity in excess of US$ 187 million, as at 31st March, 2008. 20 07 ANNUAL REPORT 3 B O A R D O F D I R E C T O R S 2007 ANNUAL REPORT 4 at 31st MARCH 2008 Mr. Akbar Habib Chairman (C.E.O. Oman National Investment Corporation) Mr. Wasef Jabsheh Vice Chairman and C.E.O. Mr. Mohammed Abu Ghazaleh Director (Chairman and C.E.O. Del Monte Fresh Produce, USA) Mr. Amir Abu Ghazaleh Director (General Manager/Partner, Abu Ghazaleh International Co. (LLC) Dubai, UAE) Mr. Khalifah Al Mulhem Director (Chairman, Advanced Polypropylene Co. Ltd. Saudi Arabia) Mr. Rateb Wazani Director (Former Minister of Justice, Government of Jordan) Mr. Khaled Sifri Director (C.E.O. of Arab Emirates Investment Bank P.J.S.C.) Dr. Adnan Steitieh Director (Executive Director, Salam International Investment Ltd., State of Qatar) Mr. Jonathan Silver Director (Partner, Clyde & Co., Dubai, UAE) Mr. Hani Tarazi Director (Director, Saba & Co.) Mr. Iyad Duwaji Director (C.E.O. Shuaa Capital psc) 20 07 ANNUAL REPORT 5 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 2007 ANNUAL REPORT 6 The Board of Directors of International General Insurance Holdings Limited (IGIH) is pleased to report that the Group has achieved its goals for the 2007 year with satisfactory results for the period, posting a net proﬁt for the Group’s sixth year of operations. We would like to thank you all for your continued support. for This result should be reviewed against the backdrop of weakening rates in the international the (re)insurance market, particularly Property and Engineering lines of business in the MENA region. We have witnessed what we consider to be extremely competitive pricing along with an apparent desire to generate income based on market share underwriting. If this trend were to continue for these lines of business, we believe that direct insurers’, and in turn their treaty reinsurers’, future results will be adversely impacted. IGI has and will continue to maintain its strict underwriting controls and criteria and does not compromise its core underwriting philosophy to compete with unsustainable rate reductions, and we have thereby fulﬁlled our operating proﬁt in line with our planned projections. During the course of the reporting year, we have achieved signiﬁcant developments which will underpin the continuing success of the Group. A major achievement and milestone for the Company was the attainment in March 2008 of a ﬁnancial rating of A- (“Excellent”) from A M Best Company Incorporated. The lack of an excellent rating has been an impediment in the expansion of the portfolio. This development, however, will accelerate the growth of the Company, both in terms of premium and net proﬁt. The Company will continue to work diligently to improve the ﬁnancial rating. 2007 has seen the successful restructuring of the group with the establishment of a class three (re)insurer in Bermuda, regulated by the Bermuda Monetary Authority (BMA). The existing portfolio was successfully transferred to the new entity and underwriting in Amman is now undertaken against the Bermuda capital. We are also in the ﬁnal stages of submitting an application to the Irish Financial Services Regulatory Authority (IFSRA) for establishing a separately capitalised subsidiary of the Bermuda Company in Dublin. This will then be followed by a branch ofﬁce in London. It is anticipated that the Dublin entity will be licensed during the second half of 2008. To support the growth objectives and raise the proﬁle of the group, we are establishing a “coverholder” ofﬁce in the Dubai International Financial Centre (DIFC). We are also in the process of establishing a marketing ofﬁce in Kuala Lumpur to support and develop our Labuan Company. We have recruited a well known ﬁgure in the Malaysian market to lead this operation. IGI continues to diversify its product lines and has added Financial Institutions to its portfolio with a dedicated, experienced individual employed to underwrite the account. Substantial progress has also been made in strengthening the IGI brand. The success is attributable to greater consistency in the implementation of our brand and judicious investments in advertising and sponsorship in the MENA region. The development of the S R Bishop Underwriting Limited operation further serves to raise our proﬁle with London and European markets. Our joint equity Partner, Saudi United Co- operative Insurance Company, received limited approval to commence underwriting from the Saudi Arabian Monetary Authority in the second half of the year and is expected to be fully operational during 2008. In reviewing the report for 2007, we are pleased to announce the following ﬁnancial highlights: • Net income increased from US$ 14.8 mil to US$ 20.4 million reﬂecting a growth of 38% • Gross Written Premium increased US$ 89 million to US$ 116.5 million, a 30% increase • Net underwriting proﬁt increased from US$ 12.2 million to US$ 14.1 million • Investment Income increased from US$ 6.2 million to US$ 11.9 million, an increase of 92% over the previous period • Total assets now stand in excess of US$ 375 million, up from last year’s total of US$ 293 million The excellent result has been achieved as a consequence of the management’s commitment to sound underwriting practices and a loyal and dedicated management team. We would like to thank all employees for their signiﬁcant contribution this year. We look forward to working together in 2008 to fulﬁll the visions and ambitions of the Company and to further establish IGI as the (re)insurer of choice for the region. 20 07 ANNUAL REPORT 7 F I N A C I A L S T A T E M E N T S 2007 ANNUAL REPORT 8 P.O. Box 9267 28th Floor - Al Attar Business Tower Sheikh Zayed Road Duabi, United Arab Emirates Tel: +971 4 332 4000 Fax:+971 4 332 4004 dubai.uae@ae.ey.com www.ey.com/me INDEPENDENT AUDITORS? REPORT TO THE SHAREHOLDERS OF INTERNATIONAL GENERAL INSURANCE HOLDINGS LIMITED Report on the Financial Statements We have audited the accompanying consolidated ﬁnancial statements of International General Insurance Holdings Limited and its subsidiaries(‘the Group’), which comprise the consolidated balance sheet as at 31 December 2007 and the consolidated income statement, consolidated cash ﬂow statement and consolidated statement of changes in equity 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 preparation of these ﬁnancial statements in accordance with International Financial Reporting Standards and the applicable provisions of the Companies Law pursuant to DIFS Law No. 3 of 2006. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of ﬁnancial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors ‘ Responsibility Our responsibility is to express an opinion on these ﬁnancial statements based on our audit. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the shareholders of the company as a body, for our audit work, for this Report, or for the opinions we have formed. We conducted our audit in accordance with International Standards on Auditing, Those standards require that we comply with ethical 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 auditors’ judgement, 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 for 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 statement. We believed that the audit evidence we have obtained is sufﬁcient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated ﬁnancial statements present fairly, in all material respects, the ﬁnancial position of the Group as of 31 December 2007, and its ﬁnancial performance and its cash ﬂows for the year then ended in accordance with International Financial Reporting Standards. Report on Other Legal and Regulatory Requirements We also conﬁrm that, in our opinion, the consolidated ﬁnancial statements include, in all material respects, the applicable requirements of the Companies Law pursuant to DIFC Law No. 3 of 2006. We have obtained all the information and explanations which we required for the purpose of our audit. To the best of our knowledge and belief, no other violations of the Companies Law pursuant to DIFC Law No. 3 of 2006 have occurred during the year which would have had a material effect on the business of the Group or on its ﬁnancial position. 25 May 2008 Dubai, United Arab Emirates A member ﬁrm of Ernst & Young Global Limited 20 07 ANNUAL REPORT 9 CONSOLIDATED BALANCE SHEET As at 31 March 2008 ASSETS Premises and equipment Intangible assets Investment in associated companies Financial assets held to maturity Financial assets available-for-sale Deferred policy acquisition costs Receivables arising from insurance contracts Other receivables Reinsurers’ share of unearned premiums Reinsurers’ share of outstanding claims Cash and short term deposits TOTAL ASSETS EQUITY AND LIABILITIES Equity attributable to equity holders of parent Notes 2008 USD 2007 USD 3 4 5 6 17 7 8 12 13 9 1,292,975 622,312 8,467,399 1,690,141 324,536 93,941 8,420,116 - 105,176,677 74,334,388 12,917,781 8,809,373 93,963,104 59,279,319 2,384,242 10,380,698 1,500,115 7,145,158 22,864,403 23,561,963 115,679,069 109,746,590 375,438,801 293,215,499 Paid in capital 10 143,375,678 143,375,678 Foreign currency translation adjustment Cumulative changes in fair values Retained earnings Minority interest Total equity LIABILITIES Liabilities arising from insurance contracts Unearned premiums Outstanding claims Other liabilities Reinsurance payable Reinsurance deposit Deferred ceded commission Total liabilities TOTAL EQUITY AND LIABILITIES 8,764 - 15,560,227 (1,995,393) 28,268,242 12,657,112 187,212,911 154,037,397 503,449 - 187,716,360 154,037,397 12 13 69,756,299 76,542,762 54,794,404 53,332,485 146,299,061 108,126,889 14 981,407 402,101 28,408,347 20,538,819 11,116,376 917,250 9,465,362 644,931 187,722,441 139,178,102 375,438,801 293,215,499 The consolidated ﬁnancial statements were authorised for issue in accordance with a resolution of the Board of Directors on 25 May 2008. The attached notes 1 to 23 form part of these consolidated ﬁnancial statements IN TER NATIONAL GENE RAL INSURAN CE HOL DIN GS L TD . 10 CONSOLIDATED INCOME STATEMENT For the year ended 31 March 2008 Insurance premiums earned Reinsurers’ share of earned premiums Net premiums earned Claims Reinsurers’ share of claims Policy acquisition costs Notes 2008 USD 2007 USD 15 15 16 16 17 101,973,615 73,012,625 (26,634,345) (27,785,048) 75,339,270 45,227,577 (60,840,941) (43,534,481) 16,860,138 21,146,142 (15,366,118) (10,593,446) NET UNDERWRITING RESULT 15,992,349 12,245,792 Investment income Loss from trading investments Commission income Net realised gains from sale of ﬁnancial assets available-for-sale Income from associated companies General and administrative expenses Gain on exchange 18 7,159,599 5,728,186 - (1,811,801) 135,719 - 19 5 3,904,956 1,716,673 47,283 195,352 (7,514,843) (3,648,400) 683,350 374,971 PROFIT FOR THE YEAR 20,408,413 14,800,773 Attributable to Equity holders of the parent Minority interest 20,417,223 14,800,773 (8,810) - 20,408,413 14,800,773 The attached notes 1 to 23 form part of these consolidated ﬁnancial statements. 3 20 07 ANNUAL REPORT 11 CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 31 March 2008 OPERATING ACTIVITIES Proﬁt for the year Adjustments for: Depreciation and amortization Net gains on sale of ﬁnancial assets available-for sale Realized loss from ﬁnancial assets held for trading Investment income Income from associated companies Reinsurers’ share of unearned premiums Movement in unearned premiums Operating proﬁt before changes in operating assets and liabilities Deferred policy acquisition costs Notes 2008 USD 2007 USD 20,408,413 14,800,773 3, 4 19 18 5 131,050 117,994 (3,904,956) (1,716,673) - 1,811,801 (7,159,599) (5,728,186) (47,283) (195,352) (3,235,540) (2,234,878) 14,961,895 15,969,255 21,153,980 22,824,734 (4,108,408) (2,455,229) Receivables arising from insurance and reinsurance contracts (26,090,200) (24,424,688) Other receivables Movement in outstanding claims Reinsurers’ share of outstanding claims Deferred ceded commission Trading investments Other liabilities Net cash from operating activities INVESTING ACTIVITIES Purchase of premises and equipment Purchase of intangible assets Purchase of ﬁnancial assets available-for-sale Proceeds from sale of ﬁnancial assets available-for sale Cash outﬂow on acquisition net of cash acquired Dividends received from associates Purchase of ﬁnancial assets held to maturity Deposits maturing after 3 months Investment income (832,723) (1,049,997) 23,210,277 13,117,661 697,560 3,596,741 272,319 242,109 - 3,272,729 2,230,320 3,931,024 16,533,125 19,055,084 3 4 4 (1,035,619) (125,412) (250,719) (17,099) (23,460,731) (8,163,727) 12,858,699 4,244,842 (595,960) - 155,365 (1,690,141) - (11,889,624) 20,000,000 18 7,159,599 5,728,186 Net cash (used in) from investing activities (18,904,496) 21,822,155 FINANCING ACTIVITIES Dividends paid Net cash used in ﬁnancing activities NET CHANGE IN CASH AND CASH EQUIVALENTS 11 (3,585,774) (1,342,884) (3,585,774) (1,342,884) (5,957,145) 39,534,355 Cash and cash equivalents at the beginning of the year 109,746,590 70,212,235 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 20 103,789,445 109,746,590 The attached notes 1 to 23 form part of these consolidated ﬁnancial statements. 4 IN TER NATIONAL GENE RAL INSURAN CE HOL DIN GS L TD . 12 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 March 2008 l a t o T y t i u q e y t i r o n M i t s e r e t n i l a t o T D S U i d e n a t e R i s g n n r a e D S U l e v i t a u m u C r i a f n i e g n a h c e u a v l D S U i n g e r o F y c n e r r u c l n o i t a s n a r t t n e m t s u d a j t n e r a p e h t f o s r e d o h l y t i u q e o t l e b a t u b i r t t A 2 6 5 , 8 1 7 , 4 4 1 8 7 6 , 5 7 3 , 3 4 1 ) 8 7 6 , 5 7 3 , 3 4 1 ( - ) 4 5 0 , 9 3 1 , 4 ( ) 4 5 0 , 9 3 1 , 4 ( 3 7 7 , 0 0 8 , 4 1 9 1 7 , 1 6 6 , 0 1 ) 4 8 8 , 2 4 3 , 1 ( 9 3 8 , 3 0 5 4 8 1 , 7 1 7 9 3 , 7 3 0 , 4 5 1 - - - - - - - - - - 8 7 6 , 5 7 3 , 3 4 1 - - 2 6 5 , 8 1 7 , 4 4 1 4 6 4 , 8 7 9 , 3 1 6 5 8 , 3 7 2 , 6 ) 8 7 6 , 5 7 3 , 3 4 1 ( ) 0 8 5 , 5 3 6 , 2 1 ( ) 6 5 8 , 3 7 2 , 6 ( ) 4 5 0 , 9 3 1 , 4 ( - ) 4 5 0 , 9 3 1 , 4 ( ) 4 5 0 , 9 3 1 , 4 ( ) 1 6 6 , 3 4 1 , 2 ( ) 3 9 3 , 5 9 9 , 1 ( 3 7 7 , 0 0 8 , 4 1 3 7 7 , 0 0 8 , 4 1 - 9 1 7 , 1 6 6 , 0 1 2 1 1 , 7 5 6 , 2 1 ) 3 9 3 , 5 9 9 , 1 ( ) 4 8 8 , 2 4 3 , 1 ( ) 4 8 8 , 2 4 3 , 1 ( - 7 9 3 , 7 3 0 , 4 5 1 2 1 1 , 7 5 6 , 2 1 ) 3 9 3 , 5 9 9 , 1 ( - ) 1 6 6 , 3 4 1 , 2 ( 1 6 6 , 3 4 1 , 2 - 1 0 3 , 5 3 3 , 6 1 - - 9 3 8 , 3 0 5 0 2 4 , 8 4 6 7 , 8 - - - - - - ) 9 1 3 , 0 2 2 , 1 ( 9 1 3 , 0 2 2 , 1 1 0 3 , 5 3 3 , 6 1 - 1 0 3 , 5 3 3 , 6 1 3 1 4 , 8 0 4 , 0 2 ) 0 1 8 , 8 ( 3 2 2 , 7 1 4 , 0 2 3 2 2 , 7 1 4 , 0 2 - - 5 8 4 , 2 5 3 , 6 1 0 2 4 , 8 5 6 0 , 4 4 3 , 6 1 ) 9 1 3 , 0 2 2 , 1 ( 0 2 6 , 5 5 5 , 7 1 4 6 7 , 8 ) 4 7 7 , 5 8 5 , 3 ( - ) 4 7 7 , 5 8 5 , 3 ( ) 4 7 7 , 5 8 5 , 3 ( - - 8 9 8 , 0 6 7 , 6 3 ) 0 9 3 ( 8 8 2 , 1 6 7 , 6 3 4 0 9 , 6 9 1 , 9 1 0 2 6 , 5 5 5 , 7 1 4 6 7 , 8 0 6 3 , 6 1 7 7 8 1 , 9 4 4 3 0 5 , 1 1 9 , 2 1 2 7 8 1 , 2 4 2 , 8 6 2 8 2 , 7 2 2 , 0 6 5 5 1 , 4 6 7 , 8 5 . s t n e m e t a t s l i a c n a n ﬁ - - - - - - - - - - - 4 6 7 , 8 - - l i a c e p S e v r e s e r y r o t u t a t S e v r e s e r i d a p l a n o i t i d d A l a t i p a c n i n i i - d a P l a t i p a c 9 4 5 , 1 9 5 , 8 4 2 4 2 , 6 1 7 , 1 9 7 2 , 2 0 6 , 1 7 2 7 1 , 6 5 5 , 2 D S U D S U D S U D S U 6 0 0 2 l i r p A 1 s a e c n a a B l d e t a d i l o s n o c e s e h t f o t r a p m r o f 3 2 o t 1 s e t o n d e h c a t t a e h T ) 9 4 5 , 1 9 5 , 8 4 ( ) 2 4 2 , 6 1 7 , 1 ( ) 9 7 2 , 2 0 6 , 1 7 ( ) 2 7 1 , 6 5 5 , 2 ( y t i u q e l a g e l s ’ p u o r G e h t t c e ﬂ e r o t t n e m t s u d A j - - - 8 7 6 , 5 7 3 , 3 4 1 ) a 2 e t o N ( n o i t i s u q c a i e s r e v e r e h t h t i w n o i t c e n n o c n i s e r a h s f o e c n a u s s I - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 8 7 6 , 5 7 3 , 3 4 1 - - - - - - - - 8 7 6 , 5 7 3 , 3 4 1 r a e y e h t g n i r u d s t n e m t s e v n i l e a s r o f l e b a l i a v a f o e u a v l r i a f n i t n e m e v o m t e N y t i u q e n i y l t c e r i d i d e s n g o c e r r a e y e h t r o f s e s n e p x e d n a e m o c n i l a t o T l e a s – r o f l e b a l i a v a n o s e s s o l d n a i s n a g i d e s n g o c e R r a e y e h t g n i r u d s t n e m t s e v n i ) 4 e t o N ( i p o h s B R S f o n o i t i s u q c a i e h t m o r f g n i t l u s e r t s e r e t n i y t i r o n M i l e a s – r o f l e b a l i a v a n o s e s s o l d n a i s n a g i d e s n g o c e R r a e y e h t g n i r u d s t n e m t s e v n i t n e m t s u d a j l n o i t a s n a r t y c n e r r u c i n g e r o F r a e y e h t g n i r u d s t n e m t s e v n i l e a s r o f l e b a l i a v a f o e u a v l r i a f n i t n e m e v o m t e N y t i u q e n i y l t c e r i d i d e s n g o c e r r a e y e h t r o f s e s n e p x e d n a e m o c n i l a t o T r a e y e h t r o f s e s n e p x e d n a e m o c n i l a t o T ) 1 1 e t o N ( n a d r o J - I G I y b i d a p s d n e d i v i D 7 0 0 2 h c r a M 1 3 f o s a e c n a a B l r a e y e h t r o f t ﬁ o r P r a e y e h t r o f s e s n e p x e d n a e m o c n i l a t o T r a e y e h t r o f t ﬁ o r P 8 0 0 2 h c r a M 1 3 f o s a e c n a a B l ) 1 1 e t o N ( i d a p s d n e d i v i D 20 07 ANNUAL REPORT 13 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 March 2008 1- ACTIVITIES International General Insurance Holdings Limited “IGIH” is incorporated as a company limited by shares under the Companies Law, DIFC Law No. 2 of 2004 on 7 May 2006 and is engaged in the business of re-insurance and insurance. The Company’s registered ofﬁce is in Dubai International Financial Centre. The company operates in four countries, Dubai, Bermuda, Jordan and Malaysia. 2- BASIS OF PREPARATION 2a SIGNIFICANT ACCOUNTING POLICIES Basis of preparation The consolidated ﬁnancial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The consolidated ﬁnancial statements have been presented in United States Dollars “USD” which is the Group’s functional currency. The consolidated ﬁnancial statements are prepared under the historical cost convention modiﬁed to include the measurement at fair value of ﬁnancial ﬁnancial assets available-for- sale. Except as noted below, the Group’s accounting policies are consistent with those used in the previous year: IAS 1 – Presentation of Financial Statements (revised 2005) The standard requires the presentation of additional disclosures to enable users of the ﬁnancial statements to evaluate the entity’s objectives, policies and processes for managing capital. IFRS 7 – Financial Instruments: Disclosure The standard requires disclosures that enable users of the ﬁnancial statements to evaluate the signiﬁcance of the entity’s ﬁnancial instruments and the nature and extent of risks arising from those ﬁnancial instruments. Acquisition of International General Insurance-Jordan “IGI-Jordan” Effective 1 April 2006, the Company and IGI-Jordan entered into a share purchase agreement (SPA). Pursuant to this agreement, IGI-Jordan’s shareholders sold their holding in IGI-Jordan in consideration for the issuance of 143,375,678 shares of the company. As a result of the issuance of shares, the shareholders of IGI-Jordan obtained control of the Company. Accordingly, the transaction was accounted for as a reverse acquisition in accordance with IFRS 3“Business Combinations”. For ﬁnancial reporting purposes, IGI-Jordan (the legal subsidiary) is the acquirer and the Company (the legal parent) is the acquiree. The consolidated ﬁnancial statements prepared following the reverse acquisition are issued under the name of the Company, but they are a continuance of the ﬁnancial statements of IGI-Jordan, because such consolidated ﬁnancial statements represent a continuation of the ﬁnancial statements of IGI-Jordan: a) The assets and liabilities of IGI-Jordan have been recognized as measured in the consolidated ﬁnancial statements at their pre-combination carrying amounts. IN TER NATIONAL GENE RAL INSURAN CE HOL DIN GS L TD . 14 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 March 2008 b) The retained earnings and other equity balances recognized in the consolidated ﬁnancial statements are the retained earnings and other equity balances of IGI-Jordan immediately before the business combination. c) The equity structure (number of shares) appearing in the consolidated ﬁnancial statements reﬂects the equity structure of the Company. Basis of consolidation The consolidated ﬁnancial statements comprise the ﬁnancial statements of IGIH and its subsidiaries as at 31 March: -International General Insurance/Bermuda, which IGIH owns 100% of its paid in capital amounting to USD 120,000 as of 31 March 2008. The company was established on 2 May 2007. The Company is engaged in the business of re-insurance and insurance. -International General Insurance Underwriting/Jordan, which IGIH owns 100% of its paid in capital amounting to USD 2,676,171 as of 31 March 2008. The company was established on 4 October 2001. The Company main operation is insurance brokerage. -SR Bishops Underwriting Limited/London, which IGIH owns 51% of its paid in capital amounting to USD 19,625 as of 31 March 2008. The company was acquired on 1 April 2007. The Company main operation is insurance brokerage. The ﬁnancial statements of the subsidiaries are prepared for the same reporting year as the Group, using consistent accounting policies. If different accounting policies were applied by the subsidiaries, adjustments shall be made on their ﬁnancial statements in order to comply with those of the IGIH. All intra-company balances, transactions, income and expenses and proﬁts and losses resulting from intra-company transactions that are recognised in assets or liabilities, are eliminated in full. Subsidiaries are fully consolidated from the date on which control is transferred to IGIH. Control is achieved where IGIH has the power to govern the ﬁnancial and operating policies of an entity in order to obtain beneﬁts from its activities. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the date of acquisition or up to the date of disposal, as appropriate. Minority interests represent the portion of proﬁt or loss and net assets not owned, directly or indirectly, by IGIH and are presented separately in the income statement and within equity in the consolidated balance sheet, separately from parent shareholders’ equity. New standard issued but not yet effective The following standard has been issued by the International Accounting Standards Board (IASB) but is not yet mandatory for these ﬁnancial statements: • IAS 1 -Presentation of ﬁnancial statements (Revised) (effective for annual periods commencing 1 January 2009) The application of the above is not expected to have a material impact on the ﬁnancial statements as and when it becomes effective. However, the application of IAS 1 (Revised) will result in amendments to the presentation of the ﬁnancial statements. 20 07 ANNUAL REPORT 15 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 March 2008 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 unearned premium 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 Group and those not reported at the balance sheet date. The Group generally estimates its claims based on appointed loss adjusters or leading underwriter’s recommendations. In addition a provision based on management’s judgement and the Group’s prior experience is maintained for the cost of settling claims incurred but not reported at the balance sheet date for the ﬁscal year. Any difference between the provisions at the balance sheet 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 Group 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 Group 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 The Group cedes insurance risk in the normal course of business for all classes of business. Reinsurance assets represent balances due from reinsurance companies. Recoverable amounts are calculated in a manner consistent with the outstanding claims provision and are in accordance with the reinsurance contract. An impairment review is performed at each reporting date or more frequently when an indication of impairment arises during the reporting year. Impairment occurs when objective evidence exists that the Group may not recover outstanding amounts under the terms of the contract and when the impact on the amounts that the Group will receive from the reinsurer can be measured reliably. The impairment loss is recorded in the income statement. Ceded reinsurance arrangements do not relieve the Group from its obligations to policyholders. IN TER NATIONAL GENE RAL INSURAN CE HOL DIN GS L TD . 16 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 March 2008 Premiums and claims on assumed reinsurance are recognised as income and expenses in the same manner as they would be if the reinsurance were considered direct business, taking into account the product classiﬁcation of the reinsured business. Reinsurance liabilities represent balances due to reinsurance companies. Amounts payable are calculated in a manner consistent with the associated reinsurance contract. Premiums and claims are presented on a gross basis for both ceded and assumed reinsurance. Reinsurance assets or liabilities are derecognised when the contractual rights are extinguished or expire or when the contract is transferred to another party. 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. Dividend revenue Dividend revenue is recognised when right to receive the payment is established. Premises and equipment Premises and equipment are 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 ranging between 5 to 10 years. The assets’ residual values, useful lives and method of depreciation are reviewed and adjusted if appropriate at each ﬁnancial year end. Impairment reviews take place when events or changes in circumstances indicate that the carrying value may not be recoverable. Impairment losses are recognised in the income statement as an expense. Intangible assets a) Goodwill Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identiﬁable assets, liabilities and contingent liabilities acquired. Goodwill arising from the investment in subsidiaries is separately shown under intangible assets, while that arising from the investment in associates is shown as part of investment in associates and subsequently adjusted for any impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is from the date of acquisition allocated to each of the Group’s cash-generating units, or groups of cash-generating units. Where the recoverable amount of the cash-generating unit is less than the carrying value, an impairment loss is recognised. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently, if events or changes in circumstances indicate that the estimated recoverable amount of a cash- generating unit or group of cash-generating units is less than their carrying amount. Impairment losses are transferred to the income statement. 20 07 ANNUAL REPORT 17 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 March 2008 b) Intangible assets Intangible assets acquired through business combination are recorded at their fair value on that date. Other intangible assets are measured on initial recognition at cost. Intangible assets with ﬁnite lives are amortised over the useful economic life, while intangible assets with indeﬁnite useful lives are assessed for impairment at each reporting date or 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. Indications of impairment of intangible assets are reviewed for and their useful economic lives are reassessed at each reporting date. Adjustments are reﬂected in the current and subsequent periods. 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. c) For assets carried at amortised cost, impairment is based on estimated cash ﬂows discounted at the effective interest rates. Derecognition of ﬁnancial instruments The derecognition of a ﬁnancial instrument takes place when the Group 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. Investment in associated companies These investments in associated companies are carried in the balance sheet at cost plus post – acquisition changes in the Group’s share of net assets of associates, less any impairment in value. The income statement reﬂects the share of the results of the operations of the associates. Financial assets available-for-sale Financial assets available-for-sale are non-derivative ﬁnancial assets that are designated as ﬁnancial assets available-for-sale. These investments are initially recorded at cost. Subsequent to initial recognition, these investments are remeasured at fair value. Fair value gains and losses are reported as a separate component of equity until the investment is IN TER NATIONAL GENE RAL INSURAN CE HOL DIN GS L TD . 18 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 March 2008 derecognised or the investment is determined to be impaired. On derecognition or impairment, the cumulative fair value gains and losses previously reported in equity is transferred to the income statement. If a ﬁnancial assets available-for-sale is impaired, an amount comprising the difference between its cost (net of any principal repayment and amortisation) and its current fair value, less any impairment loss previously recognised in the income statement, is transferred from equity to the income statement. Reversals in respect of equity instruments classiﬁed as ﬁnancial assets available-for-sale are not recognised in the income statement. Reversals of impairment losses on debt instruments classiﬁed at ﬁnancial assets available-for-sale are reversed through the income statement if the increase in the fair value of the instruments can be objectively related to an event occurring after the impairment losses were recognised in the income statement. Financial assets held to maturity Held to maturity investments are initially recognised at cost, being the fair value of consideration given including directly attributable transaction costs. After initial measurement, held-to-maturity ﬁnancial investments are subsequently measured at amortised cost using the effective interest method, less allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest method. Trade and settlement date accounting Purchases and sales of ﬁnancial assets are recognised on the trade date (that being the date at which the sale or purchase takes place). 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 Group 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. Offsetting Financial assets and liabilities are offset and the net amount reported in the balance sheet only when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liability simultaneously. Income and expense is not offset in the statement of income unless required or permitted by any accounting standard or interpretation. Foreign currencies Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. Nonmonetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction and are not 20 07 ANNUAL REPORT 19 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 March 2008 subsequently restated. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. All foreign exchange differences are taken to the statement of income except when it relates to items when gains or losses are recognised directly in equity, the gain or loss is then recognised net of the exchange component in equity As at the reporting date, the assets and liabilities of foreign subsidiaries are translated into the Group’s presentation currency at the rate of exchange ruling at the balance sheet date, and their income statements are translated at the weighted average exchange rates for the year. Exchange differences arising on translation are taken directly to a separate component of equity. On disposal of an entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is transferred to the income statement. Leases The Group 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 The fair value of ﬁnancial instruments that are actively traded in organized ﬁnancial markets is determined by reference to quoted market bid prices for assets and offer prices for liabilities, at the close of business on the balance sheet date. If quoted market prices are not available, reference is also be made to broker or dealer price quotations. For ﬁnancial instruments where there is not an active market, the fair value is determined by using valuation techniques. Such techniques include using recent arm’s length transactions, reference to the current market value of another instrument which is substantially the same and/or discounted cash ﬂow analysis. For discounted cash ﬂow techniques, estimated future cash ﬂows are based on management’s best estimates and the discount rate used is a market related rate for a similar instrument. If the fair value can not be measured reliably, these ﬁnancial instruments are measured at cost, being the fair value of the consideration paid for the acquisition of the investment or the amount received on issuing the ﬁnancial liability. All transaction costs directly attributable to the acquisition are also included in the cost of the investment. Judgements In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most signiﬁcant effect in the amounts recognised in the ﬁnancial statements: Classiﬁcation of investments Management decides on acquisition of an investment whether it should be classiﬁed as held for trading or available for sale or held to maturity. The group classiﬁes investments as trading if they are acquired primarily for the purpose of making a short term proﬁt by the dealers. IN TER NATIONAL GENE RAL INSURAN CE HOL DIN GS L TD . 20 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 March 2008 Financial assets are classiﬁed as held to maturity if the Group has the positive intention and ability to hold up till maturity. All other investments are classiﬁed as ﬁnancial assets available for sale. Impairment of investments The group treats ﬁnancial assets available for sale as impaired when there has been a signiﬁcant or prolonged decline in the fair value below its cost or where other objective evidence of impairment exists. The determination of what is “signiﬁcant” or “prolonged” requires considerable judgement. In addition, the Group evaluates other factors, including normal volatility in share price for quoted equities and the future cash ﬂows and discount factors for unquoted equities. 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: Valuation of outstanding claims, whether reported or not 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 assumptions about several factors involving varying, and possibly 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 settlement trends. Claims requiring court or arbitration decisions are estimated individually. Independent loss adjustors normally estimate property claims. Management reviews its provisions for claims incurred, and claims incurred but not reported, on a quarterly basis. Reinsurance The Group is exposed to disputes with, and possibility of defaults by, its reinsurers. The Group monitors on a quarterly basis the evolution of disputes with and the strength of its reinsurers. 20 07 ANNUAL REPORT 21 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 March 2008 3 PREMISES AND EQUIPMENT Ofﬁce furniture Computers Equipment Decorations & leasehold improvements Vehicles USD USD USD USD USD Total USD Cost At 1 April 2007 73,872 167,809 55,843 100,880 156,253 554,657 Additions 299,155 21,867 37,861 614,437 62,299 1,035,619 At 31 March 2008 373,027 189,676 93,704 715,317 218,552 1,590,276 Depreciation At 1 April 2007 23,629 87,307 25,960 37,873 55,352 230,121 Additions 7,466 32,670 4,823 4,239 17,982 67,180 At 31 March 2008 31,095 119,977 30,783 42,112 73,334 297,301 Net carrying amount At 31 March 2008 341,932 69,699 62,921 673,205 145,218 1,292,975 Ofﬁce furniture Computers Equipment Decorations & leasehold improvements Vehicles USD USD USD USD USD Total USD Cost At 1 April 2006 67,553 127,196 52,017 50,875 131,604 429,245 Additions 6,319 40,613 3,826 50,005 24,649 125,412 At 31 March 2007 73,872 167,809 55,843 100,880 156,253 554,657 Depreciation At 1 April 2006 16,522 56,520 17,503 27,931 36,005 154,481 Additions 7,107 30,787 8,457 9,942 19,347 75,640 At 31 March 2007 23,629 87,307 25,960 37,873 55,352 230,121 Net carrying amount At 31 March 2007 50,243 80,502 29,883 63,007 100,901 324,536 The depreciation charge for the year of USD 67,180 (2007: USD 75,640) has been included in general and administrative expenses. IN TER NATIONAL GENE RAL INSURAN CE HOL DIN GS L TD . 22 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 March 2008 4- INTANGIBLE ASSETS Goodwill* USD Computers software USD 2008 Total USD Computers software USD 2007 - 194,434 194,434 177,335 341,522 250,719 592,241 17,099 341,522 445,153 786,675 194,434 - - - 100,493 100,493 63,870 63,870 58,139 42,354 164,363 164,363 100,493 Cost At 1 April Additions At 31 March Amortization At 1 April Additions At 31 March Net book value 341,522 280,790 622,312 93,941 * Effective 1 April 2007, the Group completed the acquisition of 51% of S R Bishop Underwriting Limited. The details of the fair values of the assets and liabilities acquired and goodwill arising on the acquisition are as follows: Insurance receivables Other receivables Cash and deposits Reinsurance payables Less: minority interest (49%) Net assets 1 April 2007 Carrying value Fair value 1,312,321 1,312,321 51,404 51,404 269,966 269,966 (605,448) (605,448) 1,028,243 1,028,243 (503,839) 524,404 20 07 ANNUAL REPORT 23 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 March 2008 Goodwill arising on the acquisition is as follows: Total payments made Less: Fair value of net assets acquired Goodwill Cash outﬂow on acquisition: Payments made for acquisition Cash on hand and at banks from S R Bishop Net cash outﬂow Amount 865,926 524,404 341,522 (865,926) 269,966 (595,960) During the year S R Bishop net loss amounted to USD 17,979 before minority interest. There were no purchases or acquisitions of other businesses. IMPAIRMENT TESTING OF GOODWILL KEY ASSUMPTIONS USED IN VALUE IN USE CALCULATION The recoverable amount of S R Bishop Underwriting Limited has been determined based on the value in use calculation, using cash ﬂow projections based on ﬁnancial budgets approved by senior management covering a ﬁve-year period based on S R Bishop Underwriting Limited performance assumptions. The discount rate used by the Group is 10%. In the opinion of the Group’s management based on the discounted cash ﬂow projections, goodwill is not impaired 5- INVESTMENT IN ASSOCIATED COMPANIES During July 2002 the Group acquired a 33% equity ownership interest in real estate limited liabilities companies registered in Lebanon. The Group 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 2008 2007 Lebanon Lebanon Lebanon Lebanon 33% 33% 33% 33% 33% 33% 33% 33% IN TER NATIONAL GENE RAL INSURAN CE HOL DIN GS L TD . 24 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 March 2008 The following table illustrates summarised information of the Group’s investments in associates: Share of associates’ balance sheets: Current assets Non-current assets Current liabilities Net assets Share of associates’ revenues and results: Revenues Results 6- FINANCIAL ASSETS AVAILABLE-FOR-SALE 2008 USD 2007 USD 69,743 14,025,915 (5,628,259) 8,467,399 3,621,652 11,951,698 (7,153,234) 8,420,116 333,030 47,283 464,048 195,352 2008 USD 2007 USD Quoted investments Bonds and debt securities with ﬁxed interest rate 50,301,287 52,398,516 Equity securities 37,566,618 16,334,005 Funds and alternative investments 11,130,431 Unquoted investments* Government bonds and debt securities with ﬁxed interest rate Equity securities 1,763,047 4,415,294 - - 5,601,867 105,176,677 74,334,388 Equity securities have no ﬁxed maturity dates and are generally not exposed to interest rate risk. * Included in unquoted bonds and equities are investments carried at cost with value of USD 6,178,341 (2007: 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 AND REINSURANCE CONTRACTS 2008 USD 2007 USD Receivables from insurance companies and intermediaries 66,644,042 40,241,070 Reinsurers – amounts due in respect of claims paid 27,319,062 19,038,249 93,963,104 59,279,319 All of the above amounts are due within twelve months of the balance sheet date. 20 07 ANNUAL REPORT 25 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 March 2008 8- OTHER RECEIVABLES Prepaid expenses Refundable deposits Employees receivables Advance payment on investments* Trade receivables Accrued interest income Accrued dividends income Others 2008 USD 370,234 - 14,369 580,828 96,512 915,234 281,633 125,432 2007 USD 65,868 85 113,906 - 3,675 1,030,299 214,362 71,920 2,384,242 1,500,115 * This represent payments made in advance to acquire the remaining 49% of S R Bishop share capital, which will be transferred in the name of IGI on or after 30 April 2011. If IGIH decided not to acquire the remaining 49% the advance payment will be refunded. 9- 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 deposits 2008 USD 2007 USD 7,390,562 8,497,643 96,398,883 81,132,344 11,889,624 20,116,603 115,679,069 109,746,590 The time deposits, which are substantially denominated in US Dollars, are made for varying periods of between one week and one month depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. Demand deposits maturing after three months amounted to USD 11,889,624 as of 31 March 2008 (2007:nil). 10- SHARE CAPITAL Authorised Issued and fully paid 2008 USD 2007 2008 2007 USD Shares of USD 1 each 143,375,678 143,375,678 143,375,678 143,375,678 IN TER NATIONAL GENE RAL INSURAN CE HOL DIN GS L TD . 26 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 March 2008 11- DIVIDENDS PAID The Board of directors and shareholders of IGI approved on their meeting held on 21 May 2007 to distribute cash dividends amounting to USD 3,585,774 (USD 0.03 per share). (2007: USD 1,342,884 (USD 0.01 per share)). 12- UNEARNED PREMIUMS Gross 2008 Reinsurers’ share Net Gross 2007 Reinsurers’ share Net USD USD USD USD USD USD Unearned premiums 69,756,299 (10,380,698) 59,375,601 54,794,404 (7,145,158) 47,649,246 Details of the movements of the provision for unearned premium and the related reinsurers’ share is contained in (Note 15). 13- OUTSTANDING CLAIMS The movement in the provision for outstanding claims, and the related reinsurers’ share, was as follows: Gross 2008 Reinsurers’ share 2007 Net Gross Reinsurers’ share Net USD USD USD USD USD USD At the beginning of the year Claims incurred 49,832,485 (23,561,963) 26,270,522 38,214,824 (27,158,704) 11,056,120 Claims incurred but not reported 3,500,000 - 3,500,000 2,000,000 - 2,000,000 53,332,485 (23,561,963) 29,770,522 40,214,824 (27,158,704) 13,056,120 Insurance claims paid in the year (37,630,664) 17,557,698 (20,072,966) (30,416,820) 24,742,883 (5,673,937) Provided during the year 60,840,941 (16,860,138 ) 43,980,803 43,534,481 (21,146,142) 22,388,339 At the end of the year 76,542,762 (22,864,403 ) 53,678,359 53,332,485 (23,561,963) 29,770,522 Analysis of outstanding claims At the end of the year Claims incurred 71,042,762 (22,864,403 ) 48,178,359 49,832,485 (23,561,963) 26,270,522 Claims incurred but not reported 5,500,000 - 5,500,000 3,500,000 - 3,500,000 76,542,762 (22,864,403 ) 53,678,359 53,332,485 (23,561,963) 29,770,522 There are no material amounts for which amount and timing of claims payment is not resolved within one year of the balance sheet date. The carrying amounts disclosed above reasonably approximate fair value at balance sheet date. 20 07 ANNUAL REPORT 27 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 March 2008 Claims development (Gross) Underwriting year 2002 USD 2003 USD 2004 USD 2005 USD 2006 USD 2007 USD 2008 USD Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Current estimate of cumulative claims Cumulative payment to date Total cumulative claims recognised in the balance sheet date 785,399 2,882,715 2,636,351 27,196,242 14,169,367 23,280,006 3,242,945 4,973,033 9,280,790 47,999,136 40,889,955 3,525,326 8,559,142 14,954,618 58,363,593 3,736,717 10,117,423 17,709,267 3,515,448 10,948,303 3,471,996 - - - - - - - - - - - - - - - - - - - - - 3,471,996 10,948,303 17,709,267 58,363,593 40,889,955 23,280,006 154,663,120 3,136,545 7,441,877 12,046,126 36,728,190 15,102,641 3,664,979 78,120,358 335,451 3,506,426 5,663,141 21,635,403 25,787,314 19,615,027 76,542,762 14- OTHER LIABILITIES Accounts payable Amounts due to related parties (note 22) Accrued expenses 15- NET INSURANCE PREMIUM REVENUE 2008 USD 231,865 - 749,542 981,407 2008 USD 2007 USD 13,451 29,978 358,672 402,101 2007 USD Insurance premiums Change in unearned premiums Gross premiums 116,935,510 88,981,880 (14,961,895) (15,969,255) 101,973,615 73,012,625 Reinsurers’ share of insurance premiums (29,869,885) (30,019,926) Reinsurers’ share of change in unearned premiums 3,235,540 2,234,878 Reinsurers’ share of gross premiums (26,634,345) (27,785,048) 75,339,270 45,227,577 During the year the Company has revised the estimates of unearned premiums reserves on construction risk policies based on project duration vis-a-vis related risks and this has resulted in an increase in net earned premium an amount of USD 2.2 million. IN TER NATIONAL GENE RAL INSURAN CE HOL DIN GS L TD . 28 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 March 2008 16- CLAIMS Gross 2008 Reinsurers’ share Net Gross 2007 Reinsurers’ share Net USD USD USD USD USD USD Claims paid 37,630,664 (17,557,698) 20,072,966 30,416,820 (24,742,883) 5,673,937 Change in provision for outstanding claims 23,210,277 697,560 23,907,837 13,117,661 3,596,741 16,714,402 60,840,941 (16,860,138) 43,980,803 43,534,481 (21,146,142) 22,388,339 17- DEFERRED POLICY ACQUISITION COSTS At 1 April Additions Amortisation At 31 March 18- INVESTMENT INCOME Financial assets available-for-sale Dividends Interest 2008 USD 2007 USD 8,809,373 6,354,144 19,474,526 13,048,675 (15,366,118) (10,593,446) 12,917,781 8,809,373 2008 USD 2007 USD 928,482 552,743 6,231,117 5,175,443 7,159,599 5,728,186 19- NET REALISED GAINS ON FINANCIAL ASSETS AVAILABLE-FOR-SALE Realised gains Equity securities 2008 USD 2007 USD 3,904,956 1,716,673 20 07 ANNUAL REPORT 29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 March 2008 20- CASH AND CASH EQUIVALENTS Cash and cash equivalent balances in the statement of cash ﬂows consist of the following balances: Cash and bank balances Time and demand deposit 2008 USD 2007 USD 7,390,562 8,497,643 108,288,507 101,248,947 Less: Demand deposits maturing after 3 months (11,889,624) - 103,789,445 109,746,590 21- COMMITMENTS AND CONTINGENCIES As of the date of the ﬁnancial statements, followings: the Group is contingently liable to the Letters of guarantee amounting to USD 10,563 (2007: USD 8,450) to the order of the Jordanian Ministry of Trade and Industry with margin of USD 1,056 (2007: USD 845). Letters of credit amounting to USD 23,809,705 to the order of reinsurance companies(2007: USD 19,377,854). The Group has entered into commercial leases on certain apartments and ofﬁces where it is not in the best interest of the Group to purchase these assets. These leases have an average life 1 year with renewal terms included in the contracts. Renewals are at the option of the Group. 22- RELATED PARTY TRANSACTIONS Transactions with related party (Eastern Insurance Brokers Company) included in the ﬁnancial statements are as follows: Accounts Receivable/(Payable) Commission paid 2008 USD 610,471 211,228 2007 USD (29,692) 32,811 Compensation of key management personnel of the Group, consisting of salaries and beneﬁts, was USD 1,179,694 (2007: USD 1,028,139). 23- RISK MANAGEMENT The risks faced by the Group 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 Group only issues short term IN TER NATIONAL GENE RAL INSURAN CE HOL DIN GS L TD . 30 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 March 2008 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 Group underwrites mainly ﬁre and accident and marine risks. These are regarded as short-term insurance contracts as claims are normally 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. For property and energy insurance contracts the main risks are ﬁre and business interruption. In recent years the Group 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, 51%, 15% , 15% and 19% of the Group’s insurance risk relates to policies written in the Middle/Far East and Asia, Europe, USA and the rest of the world respectively. ( 2007 : 48%, 22%, 18% and 12%) Reinsurance risk In common with other insurance companies, in order to minimise ﬁnancial exposure arising from large claims, the Group, 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 effected under treaty, facultative and excess-of-loss reinsurance contracts. To minimise its exposure to signiﬁcant losses from reinsurer insolvencies, the Group evaluates the ﬁnancial condition of its reinsurers. The Group only deals with reinsurers approved by the board of directors, which are generally rated A or above by international rating agencies. 20 07 ANNUAL REPORT 31 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 March 2008 Financial risk The Group’s principal ﬁnancial instruments are ﬁnancial ﬁnancial assets available-for-sale, receivables arising from insurance and reinsurance contracts, trading investments and cash and cash equivalents. The Group does not enter into derivative transactions. The main risks arising from the Group’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 Group is exposed to interest rate risk on certain of its investments and cash and cash equivalents. The Group 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: 31 March 2008 Less than 1 year 1 to 5 years Non- interest bearing items USD USD USD Effective Interest Rate on interest bearing assets % Total USD Financial assets available-for-sale Financial assets held to maturity - - Cash and short term deposits 115,679,069 - 50,301,287 54,875,390 105,176,677 5.00 1,690,141 - - 1,690,141 115,679,069 9.50 5.45 31 March 2007 115,679,069 51,991,428 54,875,390 222,545,887 Less than 1 year 1 to 5 years Non- interest bearing items USD USD Effective Interest Rate on interest bearing assets % Total USD 52,398,516 21,935,872 74,334,388 3.65 Financial assets available-for-sale USD - Cash and short term deposits 109,746,590 - - 109,746,590 3.75 109,746,590 52,398,516 21,935,872 184,080,978 There is no signiﬁcant difference between contractual repricing or maturity dates. IN TER NATIONAL GENE RAL INSURAN CE HOL DIN GS L TD . 32 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 March 2008 The following table demonstrates the sensitivity of income statement and the Group’s equity to reasonably possible changes in interest rates, with all other variables held constant. The sensitivity of the income statement is the effect of the assumed changes in interest rates on the Group’s proﬁt for the year, based on the ﬂoating rate ﬁnancial assets and ﬁnancial liabilities held at 31 March 2008. 2008 2007 Increase/ decrease in basis Effect on proﬁt points for the year + 25 - 50 + 25 - 50 USD 289,187 (578,395) 274,366 (548,732) 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 since most of there transactions are in US Dollars and consequently the Group 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 Group, the maximum credit risk exposure to the Group is the carrying value as disclosed in the balance sheet. The Group only enters into insurance and reinsurance contracts with recognised, credit worthy third parties. It is the Group’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 Group’s exposure to bad debts. The Group portfolio is managed by the Vice-Chairman and CEO in accordance with the investment policy established by the board of directors. The Group’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 Group. The table below provides information regarding the credit risk exposure of the Group by classifying assets according to the Group’s credit rating of counterparties: 20 07 ANNUAL REPORT 33 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 March 2008 31 March 2008 Neither past due nor impaired Non investment grade (satisfactory) Non investment grade (un-satisfactory) Past due or impaired investment grade USD USD USD USD Financial assets available- for-sale 50,301,287 54,875,390 Financial assets held to maturity Receivables arising from insurance and reinsurance contracts Reinsurers’ share of unearned premium - - - 1,690,141 93,963,104 10,380,698 Reinsurers’ share of outstanding claims 21,054,522 1,809,881 Cash and short term deposits 55,225,009 60,454,060 126,580,818 223,173,274 - - - - - - - - - - - - - - 31 March 2007 Neither past due nor impaired Non investment grade (satisfactory) Non investment grade (un-satisfactory) Past due or impaired investment grade USD USD USD USD Financial assets available- for-sale 32,398,516 41,935,872 Receivables arising from insurance and reinsurance contracts Reinsurers’ share of unearned premium - - 59,279,319 7,145,158 Reinsurers’ share of outstanding claims 21,802,997 1,758,966 Cash and short term deposits 50,235,634 59,510,956 104,437,147 169,630,271 - - - - - - - - - - - - Total USD 105,176,677 1,690,141 93,963,104 10,380,698 22,864,403 115,679,069 349,754,092 Total USD 74,334,388 59,279,319 7,145,158 23,561,963 109,746,590 274,067,418 IN TER NATIONAL GENE RAL INSURAN CE HOL DIN GS L TD . 34 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 March 2008 The following table provides an aging analysis of receivables arising from insurance and reinsurance contracts past due but not impaired: Past due but not impaired Neither past due nor impaired Up to 90 days 91 to 180 days 181 to 270 days 271 to 360 days USD USD USD USD USD Total USD 31 March 2008 63,544,785 14,597,258 13,934,188 672,494 1,214,379 93,963,104 31 March 2007 27,156,021 13,084,602 15,326,945 1,256,975 2,454,776 59,279,319 For assets to be classiﬁed as ‘past due and impaired’ contractual payments are in arrears for more than 360 days and an impairment adjustment is recorded in the income statement for this. When the credit exposure is adequately secured, arrears more than 360 days might still be classiﬁed as ‘past due but not impaired”, with no impairment adjustment recorded. 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 (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors speciﬁc to the individual security, or its issuer, or factors affecting all securities traded in the market. Amman Stock Exchange Saudi Arabia Dubai International Financial Exchange Other quoted Change in equity price Effect on equity Change in equity price Effect on equity 2008 2007 USD +5% +5% +5% +5% USD 712,879 1,040,319 70,755 54,377 USD +5% - - USD 784,680 - - +5% 32,020 The company’s equity price risk exposure relates to ﬁnancial assets whose values will ﬂuctuate as a result of changes in market prices. The following table demonstrates the sensitivity of the cumulative changes in fair value to reasonably possible changes in equity prices, with all other variables held constant. The effect of decreases in equity prices is expected to be equal and opposite to the effect of the increases shown. The Company also has unquoted investments carried at cost where the impact of changes in equity prices will only be reﬂected when the investment is sold or deemed to be impaired, when the statement of income will be impacted. The Group limits market risk by maintaining a diversiﬁed portfolio and by monitoring of developments in equity markets. Liquidity risk Liquidity risk is the risk that the Group 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. All liabilities are non-interest bearing liabilities. 20 07 ANNUAL REPORT 35 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 March 2008 ASSETS Premises and equipment Intangible assets Investment in associated companies 31 March 2008 Less than one year More than one year No term Total - - - 1,292,975 622,312 8,467,399 - - - 1,292,975 622,312 8,467,399 Financial assets available-for-sale 16,760,238 52,064,334 36,352,105 105,176,677 Financial assets held to maturity - 1,690,141 Deferred policy acquisition costs 10,980,114 1,937,667 Receivables arising from insurance contracts 66,644,042 27,319,062 Other receivables 2,384,242 - Reinsurers’ share of unearned premiums 8,512,000 1,868,698 Reinsurers’ share of outstanding claims 17,526,433 5,337,970 Cash and short term deposits 115,679,069 - - - - - - - - 1,690,141 12,917,781 93,963,104 2,384,242 10,380,698 22,864,403 115,679,069 TOTAL ASSETS 238,486,138 100,600,558 36,352,105 375,438,801 EQUITY AND LIABILITIES Equity Paid in capital Foreign currency translation adjustment Cumulative changes in fair values Retained earnings Minority interest Total equity Liabilities - - - - - - - - - - - - - - 143,375,678 143,375,678 8,764 8,764 15,560,227 15,560,227 28,268,242 28,268,242 187,212,911 187,212,911 503,449 503,449 187,716,360 187,716,360 Liabilities arising from insurance contracts Unearned premiums Outstanding claims Other liabilities Reinsurance payable Reinsurance deposit Deferred ceded commission 59,292,854 10,463,445 57,407,072 19,135,690 981,407 28,408,347 - - - 11,116,376 779,662 137,588 Total liabilities 146,869,342 40,853,099 - - - - - - - 69,756,299 76,542,762 981,407 28,408,347 11,116,376 917,250 187,722,441 TOTAL EQUITY AND LIABILITIES 146,869,342 40,853,099 187,716,360 375,438,801 IN TER NATIONAL GENE RAL INSURAN CE HOL DIN GS L TD . 36 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 March 2008 ASSETS Premises and equipment Intangible assets Investment in associated companies 31 March 2007 Less than one year More than one year No term Total - - - 324,536 93,941 8,420,116 - - - 324,536 93,941 8,420,116 Financial assets available-for-sale 16,760,238 51,972,283 5,601,867 74,334,388 Deferred policy acquisition costs 7,487,967 1,321,406 Receivables arising from insurance contracts 37,142,374 22,136,945 Other receivables 1,500,115 - Reinsurers’ share of unearned premiums 6,073,384 1,071,774 Reinsurers’ share of outstanding claims 17,526,433 6,035,530 Cash and short term deposits 109,746,590 - - - - - - - 8,809,373 59,279,319 1,500,115 7,145,158 23,561,963 109,746,590 TOTAL ASSETS EQUITY AND LIABILITIES Equity Paid in capital Cumulative changes in fair values Retained earnings Total equity Liabilities 196,237,101 91,376,531 5,601,867 293,215,499 - - - - - - - - 143,375,678 143,375,678 (1,995,393) (1,995,393) 12,657,112 12,657,112 154,037,397 154,037,397 Liabilities arising from insurance contracts Unearned premiums Outstanding claims Other liabilities Reinsurance payable Reinsurance deposit Deferred ceded commission 46,575,244 8,219,160 40,001,200 13,331,285 402,101 20,538,819 - - - 9,465,362 548,191 96,740 Total liabilities 108,065,555 31,112,547 - - - - - - - 54,794,404 53,332,485 402,101 20,538,819 9,465,362 644,931 139,178,102 TOTAL EQUITY AND LIABILITIES 108,065,555 31,112,547 154,037,397 293,215,499 Capital management The Group manages its capital by ‘Enterprise Risk Management’ techniques, using a dynamic ﬁnancial analysis model. The Asset Liability match is reviewed and monitored on regular basis to maintain a strong credit rating and healthy capital adequacy ratios to support its business objectives and maximise shareholders’ value. Adjustments to capital levels are made in light of changes in market conditions and risk characteristics of the Group’s activities 20 07 ANNUAL REPORT 37 OFFICERS CORPORATE OFFICERS Mr. Wasef S. Jabsheh Vice Chairman & CEO Mr. Paul K. Munday President Mr. Waleed W. Jabsheh Executive Vice President Ms. Rachel A Butler Senior Vice President Operations Mr. Mark M Jeffrey Senior Vice President Underwriting Mr. Soumitra Biswas Senior Vice President Finance Mr. Rod Smith Business Development Manager IN TER NATIONAL GENE RAL INSURAN CE HOL DIN GS L TD . 38 OFFICES International General Insurance Holdings Limited Ofﬁce Location: Dubai International Financial Centre, Unit 101, Level 1, Gate Village 1, Dubai Postal Address: P.O. Box 506646 Dubai United Arab Emirates Telephone: +971 4 363 3520 International General Insurance Company Limited Ofﬁce: 44 Church Street Hamilton HM 12 Bermuda Telephone: +441 295 1422 Facsimile: +441 292 4728 International General Insurance Underwriting Company Limited Ofﬁce Location: 47 Al-Ameer Shaker Bin Zeid St. Shmeisani, Amman Postal Address: P.O. Box 941428 Amman 11194 Jordan Telephone: +962 6 566 2082 Facsimile: +962 6 566 2085 International General Insurance Company (Labuan Branch) Limited Ofﬁce: Level 1, LOT 7, Block F, Saguking Commercial Building, Jalan Patau- Patau 87000 Labuan Malaysia Telephone: +908 7 417672 Facsimile: +908 7 417675 Auditor: Actuary: Consultant: Ernst & Young P.O. Box 9267 Al Attar Business Tower, 28th Floor Sheikh Zayed Road Dubai, United Arab Emirates KPMG Crown House 4 Par-la-Ville Road Hamilton, HMO8 Bermuda SLW International, LLC 7941 Katy Freeway, #529 Houston Texas, 77024 U.S.A. 20 07 ANNUAL REPORT 39

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