International General Insurance Holdings Ltd.
Annual Report 2010

Plain-text annual report

A N N U A L R E P O R T 2 0 1 0 ANNUAL REPORT 2010 International General Insurance Holdings Limited | ConsoLIdated statement of InCome Contents About IGIH Board of Directors Letter from the Board of Directors Financial Statements Corporate Officers IGI Offices 2 4 6 8 38 40 2 33 About IGIH 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 3B (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 subsidiary companies in the United Kingdom, Dubai and in Labuan, Malaysia registered as a first tier reinsurer. IGI Group (companies) underwrite a worldwide portfolio of energy, property, marine, construction and engineering, financial institutions, general aviation, casualty and non-proportional reinsurance treaty business with the main geographical focus on the Afro-Asian markets. IGIH has assets of more than US$ 488 million as at 31st December, 2010. 4 5 International General Insurance Holdings Limited | Board of dIreCtors International General Insurance Holdings Limited Board of Directors as of December 31st, 2010 mr. mohammed abu Ghazaleh Chairman (Chairman and CEO, Fresh Del Monte Produce Inc. – Miami) mr. Wasef Jabsheh CEO & Vice Chairman mr. Khalifa al mulhem Director (Chairman, National Polypropylene Company Limited – Saudi Arabia) mr. Hani tarazi Director (Saba IP & Co. – Dubai, UAE) mr. Khaled sifri Director (CEO, Arab Emirates Investment Bank – Dubai, UAE) mr. Hani Jabsheh Director (CEO, Al Bawaba.com) 6 7 International General Insurance Holdings Limited | Letter from tHe Board of dIreCtors Letter from the Board of Directors 2010 witnessed a combination of good and bad news. On the positive side, it has been pleasing to see some initial signs of recovery in the world economy. However, during the course of the year, we did observe some fluidity in the strength of this recovery. Nonetheless, we have confidence that the anticipated recovery process will consolidate and gather more momentum during 2011. Recovery in the Middle East and North Africa (MENA) region, which represents the largest geographical segment in IGIH’s portfolio, outpaced that in other parts of the world. This has been largely driven by rising oil prices and increased spending budgets, especially on infrastructure projects, allocated by various countries, but particularly in the GCC region where economic resources remain buoyant. We do expect this development to continue at an impressive pace, and in saying this, we are encouraged by recent announcements made by these governments. The IGI Group stands to benefit greatly from these developments in view of our lead position in various core lines of business in the region. Turning to the bad news, 2010 witnessed a high level of natural catastrophe losses along with significant risk losses such as the sinking of the Transocean Deep Water Horizon rig in the Gulf of Mexico. The financial impact of these losses to the insurance market was substantial, and although IGI were affected by some of these, our exposures remain comfortably within our risk and catastrophe loss tolerances avoiding any impact to our capital. This is clearly reflected in the Company’s results and comparisons shown within the financial highlights hereafter. On a more uplifting note, we are pleased to share with you major developments that have been achieved during 2010: • We have been granted licensing for International General Insurance Company (U.K.) Limited enabling our Company to participate on business derived from the European Union and facilitating licensing in other parts of the world. Our U.K. Company is a wholly owned subsidiary of IGI Bermuda and is mandated to underwrite certain niche lines of business for the Group. • In the Company’s commitment to grow its regional offices, we took practical measures to add underwriting capabilities in our Dubai operation in the Dubai International Financial Centre. In time, we plan to further strengthen said operations as and when market conditions become more attractive. • As mentioned in last year’s annual report, IGI entered into a Managing General Underwriting agreement with Energy Insurance Oslo (EIO), an underwriting agency specializing in Norwegian and Scandinavian energy and utility business. We are pleased to report that this has proved to be a rewarding decision. This arrangement has generated a healthy volume of profitable new business to the Company from ‘blue chip’ entities in Norway. We hope that we will be able to expand our cooperation with EIO in other areas where we are confident that we will be able to achieve similar success. Turning to the Company’s financial results, we are glad to report that we have once again exceeded net income targets. We are confident that with the expansion plans now in place and the expected turnaround of economic conditions, especially in the MENA region, our Group will continue to achieve its planned, measured growth with commensurately rewarding results going forward. We give hereunder financial highlights of 2010 results: • Gross written premium in 2010 was US$ 179.33 million, an increase of 17.32 % compared to US$ 152.87 million for 2009. • Net underwriting profit grew to US$ 22.4 million for 2010, an increase of 67.7 % from US$ 13.35 million in 2009. This net underwriting profit represents 22.92 % of the gross earned premium for the period, against 13.73 % for 2009. • Investment income for the year stood at US$ 9.88 million, an increase of 36.4 % compared to US$ 7.24 million for 2009. • The combined ratio for 2010 was 92.52 %, compared to 98.12 % for 2009. • Total assets were US$ 488.9 million at the end of 2010, an increase of 7.1 % compared to US$ 456.6 million as of 31st December, 2009. • Shareholders’ equity rose to US$ 187.8 million at the end of 2010, an increase of 9.6 % compared to US$ 171.3 million as of 31st December, 2009. We would like to welcome Mrs. Rawan Al Said, Chief Executive Officer of Oman National Investment Corporation, to the Board of Directors of IGIH. We have no doubt that her experience in the region will provide a positive contribution to the existing Board. We would like to thank all our clients and producers for their continued support throughout 2010. We would also like to thank all our employees for their significant effort and contribution this year. We look forward to working together in 2011 to fulfill the visions and ambitions of the Company and to further establish IGI as the (Re)insurer of choice for the region. 8 9 International General Insurance Holdings Limited | fInanCIaL statements aUdItors’ rePort 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 We have audited the accompanying consolidated financial statements of International General Insurance Company Holdings Limited (“the Company”) and its subsidiaries (together “the Group”), which comprise the consolidated statement of financial position as at 31 December 2010 and the consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. management’s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and the applicable provisions of the Companies Law pursuant to DIFC Law No. 3 of 2006, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. auditors’ responsibility Our responsibility is to express an opinion on these 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 requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the 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 the management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of 31 December 2010 and its financial performance and its cash flows for the year then ended, in accordance with International Financial Reporting Standards. 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 violations of the companies law pursuant to DIFC Law No. 3 of 2006 have occurred during the period which would have had a material effect on the business of the Company or on its financial position. Dubai, United Arab Emirates _________________________ 10 11 International General Insurance Holdings Limited | ConsoLIdated statement of InCome Financial Results GROSS WRITTEN PREMIUM NET PROFIT 180 160 140 120 100 80 60 40 20 0 500 450 400 350 300 250 200 150 100 50 0 179 153 125 117 89 20 15 20 15 10 5 0 -5 17 9 -4 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 TOTAL ASSETS SHAREHOLDER’S EQUITY 488 456 426 117 293 187 188 171 154 153 200 180 160 140 120 100 80 60 40 20 0 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 12 13 International General Insurance Holdings Limited | fInanCIaL statements ConsoLIdated statement of fInanCIaL PosItIon AT 31 DeceMBer 2010 assets Premises and equipment Intangible assets Investment in associated companies Investment property Investments Deferred policy acquisition costs Insurance receivables Trade receivables Other assets Reinsurers’ share of insurance reserves Cash and bank balances totaL assets eQUItY and LIaBILItIes equity Issued share capital Foreign currency translation reserve Cumulative changes in fair value of investments Retained earnings total equity Liabilities Insurance reserves Other liabilities Reinsurance payable Reinsurance deposit Unearned commissions total liabilities totaL eQUItY and LIaBILItIes Notes 2010 USD 2009 USD 3 4 5 6 7 8 9 10 11 12 13 3,735,073 298,990 11,280,888 28,996,126 3,720,305 475,438 11,032,729 28,672,789 154,998,453 123,656,287 25,730,470 85,985,756 1,037,660 12,185,890 62,863,007 20,003,250 94,330,538 - 4,778,040 61,063,626 101,689,289 108,855,584 488,801,602 456,588,586 14 143,375,678 143,375,678 (269,090) 6,576,750 (208,050) 4,389,708 38,097,808 23,769,816 187,781,146 171,327,152 12 16 17 259,462,447 235,220,774 2,698,012 31,083,276 - 7,776,721 301,020,456 488,801,602 1,310,846 24,755,439 17,318,875 6,655,500 285,261,434 456,588,586 The consolidated financial statements were authorised for issue in accordance with a resolution of the Board of Directors on 20 March 2011. 14 15 International General Insurance Holdings Limited | fInanCIaL statements ConsoLIdated statement of InCome AT 31 DeceMBer 2010 International General Insurance Holdings Limited | fInanCIaL statements ConsoLIdated statement of CasH fLoWs AT 31 DeceMBer 2010 Gross earned premiums Reinsurers’ share of gross earned premiums net premiums Claims Reinsurers’ share of claims Commission income Policy acquisition costs net underwriting result Investment income Share of profit from associated companies Gain on sale of premises equipment General and administrative expenses Provision for doubtful debts Gain on exchange Goodwill impaired ProfIt for tHe Year Attributable to: Equity holders of the parent Non-controlling interest Profit for the year other comprehensive income Fair value changes during the year Currency translation differences other comprehensive income for the year total comprehensive income for the year Notes 18 12 12 17 19 5 4 2010 USD 2009 USD 159,169,279 148,366,598 (61,466,935) (51,106,248) 97,702,344 97,260,350 (94,168,856) (89,879,032) 37,614,741 13,268,394 20,087,962 9,733,389 (32,024,216) (23,849,829) 22,392,407 13,352,840 9,510,260 575,159 - 5,589,866 1,240,368 3,815 oPeratInG aCtIVItIes Profit for the year adjustments for: Depreciation and amortisation Gain on sale of available-for-sale investments Provision for doubtful debts Impairment of available-for-sale investments Gain on sale of premises and equipment Loss on revaluation of held for trading investments Dividends and interest income Share of profit from associated companies Reinsurers’ share of insurance reserves (15,079,396) (10,683,787) Insurance reserves - 84,562 (287,486) (847,800) 409,811 - 17,195,506 9,065,113 17,195,506 9,095,131 Deferred policy acquisition costs Insurance receivables Trade receivables Other assets Unearned commission Held for trading investments - (30,018) Other liabilities 17,195,506 9,065,113 Net cash from operating activities 2010 USD 2009 USD 17,195,506 9,065,113 2,187,042 (61,040) 2,126,002 9,399,751 38,123 9,437,874 19,321,508 18,502,987 InVestInG aCtIVItIes Purchase of premises and equipment Proceeds from sale of premises equipment Purchase of intangible assets Purchase of available-for-sale investments Proceeds from sale of available-for-sale investments Purchase of held to maturity investments Purchase of investment property Dividends received from associated companies Deposits maturing after three months Dividends and interest income Net cash used in investing activities fInanCInG aCtIVItIes Dividends paid Net cash used in financing activities net CHanGe 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 Notes 2010 USD 2009 USD 17,195,506 9,065,113 19 19 19 5 3 4 5 15 13 1,071,959 (1,463,230) - 1,280,060 - 42,060 (8,579,242) (575,159) (1,799,381) 24,241,673 31,414,246 (5,727,220) (2,707,296) (1,037,660) (7,407,850) 1,121,221 109,231 1,387,166 578,999 (368,524) 847,800 526,290 (3,815) 1,109,941 (6,857,573) (1,240,368) 2,035,256 15,445,292 21,138,411 (1,929,806) 13,787,107 - (2,541,354) 3,069,619 949,281 (545,849) 17,151,838 33,927,409 (706,468) (2,511,150) - (203,811) 3,815 (9,845) (44,384,574) (23,079,200) 18,261,329 (3,000,000) (323,337) 327,000 (5,505,342) 8,579,242 4,613,939 - (20,767,749) 405,351 2,386,183 6,857,573 (26,955,961) (32,101,083) (2,867,514) (2,867,514) (12,671,637) 107,156,372 94,484,735 - - 1,826,326 105,330,046 107,156,372 16 17 International General Insurance Holdings Limited | fInanCIaL statements ConsoLIdated statement of CHanGe In eQUItY AT 31 DeceMBer 2010 International General Insurance Holdings Limited | fInanCIaL statements notes to tHe ConsoLIdated fInanCIaL statements AT 31 DeceMBer 2010 Attributable to equity holders of the parent 1. aCtIVItIes Issued share capital foreign currency translation reserve Cumulative change in fair value of investments retained earnings total non- controlling interests total equity International General Insurance Holdings Limited [the Company] 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. USD USD USD USD USD USD USD The Company and its subsidiaries [together the Group] operate in the United Arab Emirates, Bermuda, Jordan and Malaysia. At 1 January 2009 Profit for the year Other comprehensive income Total comprehensive income (loss) Acquisition of non controlling interest - - - - 143,375,678 (231,658) (5,010,043) 14,674,685 152,808,662 529,981 153,338,643 - - 9,095,131 9,095,131 (30,018) 9,065,113 23,608 9,399,751 - 9,423,359 14,515 9,437,874 2. 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. 23,608 9,399,751 9,095,131 18,518,490 (15,503) 18,502,987 The consolidated financial statements are prepared under the historical cost convention modified to include the measurement at fair value of financial assets available-for-sale, financial assets held for trading and investment properties. - - - - (514,478) (514,478) Basis of consolidation The financial statements of the subsidiaries are prepared for the same reporting year as the Company, using consistent accounting policies. at 31 december 2009 143,375,678 (208,050) 4,389,708 23,769,816 171,327,152 Profit for the year Other comprehensive income Total comprehensive income Dividends paid during the year (note 15) - - - - - - 17,195,506 17,195,506 (61,040) 2,187,042 - 2,126,002 (61,040) 2,187,042 17,195,506 19,321,508 - - (2,867,514) (2,867,514) at 31 december 2010 143,375,678 (269,090) 6,576,750 38,097,808 187,781,146 - - - - - - 171,327,152 17,195,506 2,126,002 19,321,508 (2,867,514) 187,781,146 Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. All intra-group balances, transactions, income and expenses and profits and losses, including dividends resulting from intra-group transactions, are eliminated in full. Changes in accounting policies The accounting policies adopted are consistent with those of the previous financial year, except for the following new and amended IFRS and IFRIC interpretations effective as of 1 January 2010: Ifrs 2 share-based Payment: Group Cash-settled share-based Payment transactions Ifrs 2 share-based Payment (revised) The International Accounting Standards Board (IASB) issued an amendment to IFRS 2 that clarified the scope and the accounting for group cash-settled share-based payment transactions. The Group adopted this amendment as of 1 January 2010. It did not have an impact on the financial position or performance of the Group. Ifrs 3 Business Combinations (revised) and Ias 27 Consolidated and separate financial statements (amended) Ifrs 3 (revised) introduces significant changes in the accounting for business combinations occurring after becoming effective. Changes affect the valuation of non-controlling interest, the accounting for transaction costs, the initial recognition and subsequent measurement of a contingent consideration and business combinations achieved in stages. These changes will impact the amount of goodwill recognised, the reported results in the period that an acquisition occurs and future reported results. as 27 (amended) requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as a transaction with owners in their capacity as owners. Therefore, such transactions will no longer give rise to goodwill, nor will it give rise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes by IFRS 3 (Revised) and IAS 27 (Amended) affect acquisitions or loss of control of subsidiaries and transactions with non-controlling interests after 1 January 2010. The change in accounting policy was applied prospectively and had no impact on the financial position or the performance of the Group. IfrIC 17 distributions of non-cash assets to owners This interpretation provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends. The interpretation has no effect on either, the financial position or performance of the Group. standards issued but not effective Standards issued but not yet effective up to the date of issuance of the Group financial statements are listed below. This listing is of standards and interpretations issued, which the Group reasonably expects to be applicable at a future date. The Group intends to adopt those standards when they become effective. Ias 24 related Party disclosures (amendment) The amended standard is effective for annual periods beginning on or after 1 January 2011. It clarified the definition of a related party to simplify the identification of such relationships and to eliminate inconsistencies in its application. The revised standard introduces a partial exemption of disclosure requirements for government related entities. The Group does not expect any impact on its financial position or performance. Early adoption is permitted for either the partial exemption for government-related entities or for the entire standard. 18 19 International General Insurance Holdings Limited | fInanCIaL statements notes to tHe ConsoLIdated fInanCIaL statements AT 31 DeceMBer 2010 International General Insurance Holdings Limited | fInanCIaL statements notes to tHe ConsoLIdated fInanCIaL statements AT 31 DeceMBer 2010 2. BasIs of PreParatIon (continued) Changes in accounting policies (continued) Ias 32 financial Instruments: Presentation – Classification of rights Issues (amendment) The amendment to IAS 32 is effective for annual periods beginning on or after 1 February 2010 and amended the definition of a financial liability in order to classify rights issues (and certain options or warrants) as equity instruments in cases where such rights are given pro rata to all of the existing owners of the same class of an entity’s non-derivative equity instruments, or to acquire a fixed number of the entity’s own equity instruments for a fixed amount in any currency. This amendment will have no impact on the Group after initial application. Ifrs 9 financial Instruments: Classification and measurement IFRS 9 as issued reflects the first phase of the IASBs work on the replacement of IAS 39 and applies to classification and measurement of financial assets as defined in IAS 39. The standard is effective for annual periods beginning on or after 1 January 2013. In subsequent phases, the IASB will address classification and measurement of financial liabilities, hedge accounting and derecognition. The completion of this project is expected in early 2011. The adoption of the first phase of IFRS 9 will have an effect on the classification and measurement of the Group’s financial assets. The Group will quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture. IfrIC 19 extinguishing financial Liabilities with equity Instruments IFRIC 19 is effective for annual periods beginning on or after 1 July 2010. The interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as consideration paid. The equity instruments issued are measured at their fair value. In case that this cannot be reliably measured, the instruments are measured at the fair value of the liability extinguished. Any gain or loss is recognized immediately in profit or loss. The adoption of this interpretation will have no effect on the financial statements of the Group. Ceded reinsurance arrangements do not relieve the Group from its obligations to policyholders. 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 is stated at cost less accumulated depreciation and any impairment in value. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets ranging between 3 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 consolidated statement of income as an expense. summary of significant accounting policies Intangible assets 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 period of coverage. The change in the provision for unearned premiums is taken to the consolidated statement of income in order that revenue is recognised over the period of risk. Premiums written include adjustments to premiums written in prior accounting periods and estimates for “pipeline” premiums. An estimate is made at the consolidated statement of financial position date to recognise retrospective adjustments to premiums or commissions. Outward reinsurance premiums are accounted for in the same accounting period as the premiums for the related direct insurance or inwards reinsurance business. 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. 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 consolidated statement of financial position date. 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 charged to the consolidated statement of income. The Group generally estimates its claims based on appointed loss adjusters or leading underwriters’ 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 consolidated statement of financial position date. Any difference between the provisions at the statement of financial position 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 consolidated statement of financial position 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. 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 consolidated statement of income. b) Intangible assets Intangible assets acquired through business combinations 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 lives, 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 consolidated statement of income. Indications of impairment of intangible assets are reviewed 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 software licenses. These intangible assets are amortised on a straight line basis over their estimated economic useful lives of 5 years. Impairment and uncollectibility of financial assets An assessment is made at each consolidated statement of financial position 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 consolidated statement of income. 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; and c) For assets carried at amortised cost, impairment is based on estimated cash flows discounted at the effective interest rates. 20 21 International General Insurance Holdings Limited | fInanCIaL statements notes to tHe ConsoLIdated fInanCIaL statements AT 31 DeceMBer 2010 International General Insurance Holdings Limited | fInanCIaL statements notes to tHe ConsoLIdated fInanCIaL statements AT 31 DeceMBer 2010 2. BasIs of PreParatIon (continued) summary of significant accounting policies (continued) 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 Investments in associated companies are carried in the consolidated statement of financial position at cost plus post – acquisition changes in the Group’s share of net assets of associates, less any impairment in value. The consolidated statement of income reflects the share of the results of the operations of the associates. Investment properties Investment properties are measured initially at cost, including transaction costs. The carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met; and excludes the costs of day to day servicing of an investment property. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the reporting date. Gains or losses arising from changes in the fair values of investment properties are included in the consolidated statement of income in the period in which they arise. Investment properties are derecognised when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognised in the consolidated statement of income in the period of derecognition. Transfers are made to or from investment property only when there is a change in use. For a transfer from investment property to owner occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. If owner occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use. Investments Financial assets within the scope of IAS 39 are classified as financial assets at fair value through profit or loss, held-to-maturity investments or available-for-sale financial assets. The Group determines the classification of its financial assets at initial recognition. All financial assets are recognised initially at fair value plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset. The subsequent measurement of financial assets depends on their classification as follows: Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss includes financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Financial assets at fair value through profit and loss are carried in the statement of financial position at fair value with changes in fair value recognised in the consolidated statement of income. The Group has not designated any financial assets upon initial recognition as at fair value through profit or loss. Held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity when the Group has the positive intention and ability to hold it to maturity. After initial measurement held-to-maturity investments are measured at amortised cost using the effective interest rate method, less impairment. Impairment losses are recognised in the consolidated statement of income. Available-for-sale financial investments Available-for-sale financial investments include equity and debt securities. Equity investments classified as available-for sale are those, which are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in the market conditions. After initial measurement, available-for-sale financial investments are subsequently measured at fair value with unrealised gains or losses recognised as other comprehensive income in the available-for-sale reserve until the investment is derecognised, at which time the cumulative gain or loss is recognised in other operating income, or determined to be impaired, at which time the cumulative loss is recognised in the consolidated statement of income and removed from the available- for-sale reserve. cash and cash equivalents For the purpose of the consolidated 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. 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 financial liabilities are offset and the net amount reported in the consolidated statement of financial position 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 consolidated statement of income unless required or permitted by any accounting standard or interpretation. Foreign currencies The Group’s consolidated financial statements are presented in United States Dollars, which is also the functional currency of the Company. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions and balances Transactions in foreign currencies are initially recorded by the Group entities at their respective functional currency rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency spot rate of exchange ruling at the reporting date. All differences are taken to the consolidated statement of income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. Group companies The assets and liabilities of foreign operations are translated into United States Dollars at the rate of exchange prevailing at the reporting date and their statements of income are translated at exchange rates prevailing at the date of the transactions. The exchange differences arising on the translation are recognised in other comprehensive income. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in the consolidated statement of income. 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 consolidated statement of income 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 consolidated statement of financial position 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 cannot 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. 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 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 prices 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 consolidated statement of financial position 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: 22 23 International General Insurance Holdings Limited | fInanCIaL statements notes to tHe ConsoLIdated fInanCIaL statements AT 31 DeceMBer 2010 International General Insurance Holdings Limited | fInanCIaL statements notes to tHe ConsoLIdated fInanCIaL statements AT 31 DeceMBer 2010 2. BasIs of PreParatIon (continued) summary of significant accounting policies (continued) 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 consolidated statement of financial position date and for the expected ultimate cost of claims incurred but not yet reported (IBNR) at the consolidated statement of financial position 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. Investment properties Investment properties are stated at fair value which is determined based on valuations performed by professional independent valuers. 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. 3. PremIses and eQUIPment Office building USD Office furniture Computers Equipment Leasehold improvements Vehicles Total USD USD USD USD USD USD Cost At 1 January 2010 1,826,810 1,053,063 385,408 146,330 Additions 9,378 231,302 61,139 39,227 At 31 December 2010 1,836,188 1,284,365 446,547 185,557 743,382 244,485 987,867 253,571 4,408,564 120,937 706,468 374,508 5,115,032 depreciation At 1 January 2010 Additions At 31 December 2010 net carrying amount - 99,413 99,413 146,197 201,155 347,352 246,803 98,807 72,768 35,929 345,610 108,697 72,139 150,352 47,452 688,259 691,700 197,804 1,379,959 208,944 281,083 4. IntanGIBLe assets Cost Opening balance Additions Foreign currency transaction adjustment Closing balance amortization Opening balance Additions Closing balance net book value Goodwill Computer software 2010 Total 2009 Total USD USD USD USD 287,486 - - 561,987 203,811 - 849,473 203,811 - 287,486 765,798 1,053,284 - 287,486 287,486 - 374,035 92,773 466,808 298,990 374,035 380,259 754,294 298,990 804,108 76,195 (30,830) 849,473 243,628 130,407 374,035 475,438 Goodwill has been allocated to North Star Underwriting Limited which is considered to be a cash generating unit. The recoverable amount of the cash generating unit has been determined by calculating cash flow projections based on financial budgets approved by senior management covering a five year period. Goodwill allocated to the cash generating unit has been tested for impairment, and since the recoverable amount of the cash generating unit during the year was nil, the goodwill was impaired in full. 5. InVestment In assoCIated ComPanIes In 2002, the Group acquired a 33% equity ownership interest in companies registered in Lebanon as shown below: Star rock SAL Lebanon Sina SAL Lebanon Silver rock SAL Lebanon Golden rock SAL Lebanon country of incorporation Ownership Lebanon Lebanon Lebanon Lebanon 2010 33% 33% 33% 33% 2009 33% 33% 33% 33% At 31 December 2010 1,736,775 937,013 100,937 76,860 706,784 176,704 3,735,073 Movement on investment in associates was as follows: Cost At 1 January 2009 Additions Transfers Write off and disposals - 1,826,810 - - 482,000 184,646 466,225 (79,808) 273,011 112,397 136,601 18,518 946,447 314,040 198,832 2,036,891 54,739 2,511,150 - - (8,789) - (466,225) At 31 December 2009 1,826,810 1,053,063 385,408 146,330 depreciation At 1 January 2009 Charge for the year Write off At 31 December 2009 net carrying amount - - - - 69,165 156,840 (79,808) 146,197 138,035 108,768 - 246,803 39,692 41,865 (8,789) 72,768 (50,880) 743,382 45,288 77,731 (50,880) 72,139 - - - (139,477) 253,571 4,408,564 86,964 63,388 379,144 448,592 - (139,477) 150,352 688,259 Opening balance Share of profit of associated companies Share of fair value gain on investment properties Dividends received 2010 USD 11,032,729 575,159 - (327,000) 11,280,888 2009 USD 10,197,712 467,264 773,104 (405,351) 11,032,729 at 31 december 2009 1,826,810 906,866 138,605 73,562 671,243 103,219 3,720,305 the depreciation charge for the year of Usd 691,700 (2009: Usd 448,592) has been included in general and administrative expenses. 24 25 International General Insurance Holdings Limited | fInanCIaL statements notes to tHe ConsoLIdated fInanCIaL statements AT 31 DeceMBer 2010 5. InVestment In assoCIated ComPanIes (continued) The following table includes summarised information of the Group’s investments in associates: International General Insurance Holdings Limited | fInanCIaL statements notes to tHe ConsoLIdated fInanCIaL statements AT 31 DeceMBer 2010 8. deferred PoLICY aCQUIsItIon Costs Share of associates’ statement of financial position Current assets Non-current assets Current liabilities Net assets Share of associates’ revenues and results Revenues Profit 2010 USD 604,829 16,955,064 (6,279,005) 11,280,888 2009 USD 549,809 16,915,258 (6,432,338) 11,032,729 829,018 1,492,587 575,159 1,240,368 Opening balance Acquisition costs Charged to consolidated statement of income 9. InsUranCe reCeIVaBLes Receivables from insurance companies and intermediaries Reinsurers – amounts due in respect of claims paid 2010 USD 20,003,250 37,751,436 (32,024,216) 25,730,470 2010 USD 84,555,470 1,430,286 85,985,756 2009 USD 18,073,444 25,779,635 (23,849,829) 20,003,250 2009 USD 76,948,231 17,382,307 94,330,538 Investment properties of the associates are stated at fair value, which has been determined based on valuations performed by professional independent valuers who are specialists in valuing these types of investment properties. The fair value represents the amount, which the assets could be exchanged between a knowledgeable, willing seller in an arm’s length transaction at the date of valuation. All the investment properties generated rental income during the current period and the prior years. 6. InVestment ProPertY The following table includes summarised information of the Group’s investment property: Commercial building Land* 2010 USD 20,534,276 8,461,850 28,996,126 2009 USD 20,429,402 8,243,387 28,672,789 *The land is registered in the name of the Directors of the Company. The Company has obtained an irrevocable proxy over this investment property. There is no significant difference between the carrying amount and fair value of the investment property based on valuations performed by independent valuer. 7. InVestments Held to maturity Unquoted bonds Held for trading Quoted funds Available-for-sale Quoted bonds and debt securities with fixed interest rate Quoted equities Quoted funds and alternative investments Unquoted government bonds and debt securities with fixed interest rate Unquoted equities* 2010 USD 2009 USD 4,690,141 1,690,141 1,679,234 1,830,525 71,847,200 61,360,659 5,623,167 1,410,934 8,387,118 148,629,078 154,998,453 59,362,794 43,511,474 7,463,301 1,410,934 8,387,118 120,135,621 123,656,287 *Carried at cost on account of the unpredictable nature of future cash flows and lack of suitable alternative methods to arrive at a reliable fair value. There is no market for these investments and the Group intends to hold them for the long term. Provision for impairment for equity investments charged to the consolidated statement of income amounted to USD 1,280,060 (2009: USD 526,290). 26 The management believes that the insurance receivables are not impaired and will be recovered in full. For the aging details please refer to note 23 “credit risk”. 10. trade reCeIVaBLes This amount represents the balances due from the Specialty Mall customers against rental income. There are no impaired trade receivables and management believes that the trade receivables will be recovered in full. For the aging details please refer to note 23 “credit risk”. 11. otHer assets Deferred XOL premium Accrued interest income Advance payment on investments Prepaid expenses Accrued dividend income Refundable deposits Employees receivables Others 2010 USD 6,288,817 1,338,608 2,782,299 246,432 1,032,728 74,827 187,294 234,885 2009 USD 2,590,449 1,137,314 126,027 530,330 262,240 37,316 31,003 63,361 12,185,890 4,778,040 27 International General Insurance Holdings Limited | fInanCIaL statements notes to tHe ConsoLIdated fInanCIaL statements AT 31 DeceMBer 2010 International General Insurance Holdings Limited | fInanCIaL statements notes to tHe ConsoLIdated fInanCIaL statements AT 31 DeceMBer 2010 12. InsUranCe reserVes Gross USD Reinsurers’ share USD 2010 Net USD Gross USD Reinsurers’ share USD 2009 Net USD Unearned premiums 103,402,699 (28,106,769) 75,295,930 83,238,624 (21,561,486) 61,677,138 Outstanding claims 156,059,748 (34,756,238) 121,303,510 151,982,150 (39,502,140) 112,480,010 259,462,447 (62,863,007) 196,599,440 235,220,774 (61,063,626) 174,157,148 a) Unearned premiums Gross USD Reinsurers’ share USD 2010 Net USD Gross USD Reinsurers’ share USD 2009 Net USD Opening balance Premiums written Premiums earned 83,238,624 (21,561,486) 61,677,138 78,743,301 (13,427,326) 65,315,975 179,333,354 (68,012,218) 111,321,136 152,861,921 (59,240,408) 93,621,513 (159,169,279) 61,466,935 (97,702,344) (148,366,598) 51,106,248 (97,260,350) 103,402,699 (28,106,769) 75,295,930 83,238,624 (21,561,486) 61,677,138 b) outstanding claims Movement in outstanding claims Gross USD Reinsurers’ share USD 2010 Net USD Gross USD Reinsurers’ share USD 2009 Net USD At the beginning of the year Reported claims 112,482,150 (39,502,140) 72,980,010 110,800,288 (48,439,663) 62,360,625 Claims incurred but not reported 39,500,000 - 39,500,000 30,231,893 (1,231,893) 29,000,000 151,982,150 (39,502,140) 112,480,010 141,032,181 (49,671,556) 91,360,625 Claims paid (90,091,258) 42,360,643 (47,730,615) (78,929,063) 30,257,378 (48,671,685) Provided during the year 94,168,856 (37,614,741) 56,554,115 89,879,032 (20,087,962) 69,791,070 At the end of the year 156,059,748 (34,756,238) 121,303,510 151,982,150 (39,502,140) 112,480,010 At the end of the year Reported claims 114,059,748 (34,756,238) 79,303,510 112,482,150 (39,502,140) 72,980,010 Claims incurred but not reported 42,000,000 - 42,000,000 39,500,000 - 39,500,000 156,059,748 (34,756,238) 121,303,510 151,982,150 (39,502,140) 112,480,010 claims development The following tables show the estimate of cumulative incurred claims, including both claims notified and IBNR for each successive accident year at each statement of financial position date, together with cumulative payments to date. 2006 USD 2007 USD 2008 USD 2009 USD 2010 USD Total USD At end of accident year 6,958,339 21,043,300 48,321,100 28,528,100 48,892,848 153,743,687 One year later Two years later Three years later Four years later Current estimate of cumulative claims incurred Cumulative payments to date Liability recognised in the statement of financial position Liability in respect of years prior to 2006 33,226,096 59,651,500 63,821,433 64,953,900 49,255,000 79,736,254 68,920,200 47,765,268 79,324,900 47,922,100 - - - - - - - - - - 221,652,929 197,911,454 127,090,168 47,922,100 47,922,100 79,324,900 68,920,200 64,953,900 48,892,848 310,013,948 (41,739,000) (57,941,600) (47,886,600) (30,656,500) (25,383,200) (203,606,900) 6,183,100 21,383,300 21,033,600 34,297,400 23,509,648 106,407,048 Incurred but not reported claims total liability included in the consolidated statement of financial position 13. CasH and BanK BaLanCes Cash and bank balances Time deposits Cash and cash equivalents Demand deposits 7,652,700 114,059,748 42,000,000 156,059,748 2009 USD 34,002,791 73,153,581 107,156,372 1,699,212 108,855,584 2010 USD 24,495,024 69,989,711 94,484,735 7,204,554 101,689,289 The time deposits, which are substantially denominated in US Dollars, are made for varying periods of time between one month to two years depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. 14. IssUed sHare CaPItaL Shares of USD 1 each 15. dIVIdends PaId Authorised, issued and fully paid 2010 USD 2009 USD 143,375,678 143,375,678 At a meeting held on 19 April 2010, the shareholders resolved to pay dividend of USD 0.02 per share amounting to USD 2,867,514 related to the year ended 31 December 2009 (2009: no dividend paid or proposed). 28 29 International General Insurance Holdings Limited | fInanCIaL statements notes to tHe ConsoLIdated fInanCIaL statements AT 31 DeceMBer 2010 International General Insurance Holdings Limited | fInanCIaL statements notes to tHe ConsoLIdated fInanCIaL statements AT 31 DeceMBer 2010 16. otHer LIaBILItIes 20. InVestment In sUBsIdIaIres Accounts payable Accrued expenses 17. Unearned CommIssIons Opening balance Commissions received Commissions earned 18. net InsUranCe PremIUm reVenUe Gross premiums Change in unearned premiums Gross earned premiums Reinsurers’ share of insurance premiums Reinsurers’ share of change in unearned premiums Reinsurers’ share of gross earned premiums 19. InVestment InCome Interest Dividends Gain on sale of available-for-sale investments Loss on revaluation of held for trading investments Impairment on available-for-sale investments (note 7) Rental income, net 2010 USD 1,342,525 1,355,487 2,698,012 2010 USD 6,655,500 14,389,615 (13,268,394) 7,776,721 2010 USD 179,333,354 (20,164,075) 159,169,279 (68,012,218) 6,545,283 (61,466,935) 97,702,344 2010 USD 6,178,579 2,400,663 1,463,230 (42,060) (1,280,060) 789,908 9,510,260 2009 USD 780,360 530,486 1,310,846 2009 USD 3,585,881 12,803,008 (9,733,389) 6,655,500 2009 USD 152,861,921 (4,495,323) 148,366,598 (59,240,408) 8,134,160 (51,106,248) 97,260,350 2009 USD 5,924,319 933,254 368,524 (1,109,941) (526,290) - 5,589,866 International General Insurance Company Limited International General Insurance Underwriting North Star Underwriting Limited1 Specialty Malls Investment Co.2 Country of incorporation Bermuda Jordan United Kingdom Jordan 2010 100% 100% 100% 100% Ownership 2009 100% 100% 100% 100% 1. During the previous year, an employment and contractual dispute arose between Mr Stephen Bishop and North Star Underwriting Limited (previously known as SR Bishop Underwriting Limited) during August 2009. This culminated in Mr Bishop and Skalama issuing legal proceedings against the Company, North Star Underwriting Limited and three directors of the Board of North Star in the English court in October 2009. Based on legal advice received to date, the law suit was settled in March 2011 with no significant financial impact on the Group. 2. In 2009, the Group acquired 100% of the ownership of Specialty Malls Investment Company, a real estate company in Amman owning and managing a commercial building treated as “investment property” as per IAS 40. The fair value of the identifiable assets and liabilities of Specialty Malls Investment Company as at the date of acquisition were: Premises and equipment Investment property Cash and bank balances Other liabilities Purchase consideration Fair value on acquisition USD 1,826,810 20,338,628 93,891 (3,117) 22,256,212 22,256,212 The building has generated rental income during the year. As at 31 December 2010, financial statements of the subsidiary are consolidated with the Group’s financial statements. 21. CommItments and ContInGenCIes As of the date of the financial statements, the Company is contingently liable for the following: • Letters of Guarantee amounting to USD 12,225 (31 December 2009: USD 7,125) to the order of the Jordanian Ministry of Trade and Industry with margin of USD 1,222 (31 December 2009: USD 713). • Letters of Credit amounting to USD 30,030,741 to the order of reinsurance companies (31 December 2009: USD 42,883,867). 30 31 International General Insurance Holdings Limited | fInanCIaL statements notes to tHe ConsoLIdated fInanCIaL statements AT 31 DeceMBer 2010 International General Insurance Holdings Limited | fInanCIaL statements notes to tHe ConsoLIdated fInanCIaL statements AT 31 DeceMBer 2010 22. related party transactions Related parties represent major shareholders, associates, directors and key management personnel of the Group and entities controlled, jointly controlled or significantly influenced by such parties, Pricing policies and terms of these transactions are approved by the Group’s management. Transactions with related parties included in the consolidated financial statements are as follows: consolidated statement of financial position 2010 USD 2009 USD Purchase of subsidiary (note 20) - 22,256,212 consolidated statement of income 2010 USD 2009 USD Commission paid 63,054 50,332 Compensation of key management personnel of the Group, consisting of salaries and benefits was USD 3,386,601 (31 December 2009: USD 2,651,913). 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 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 insurance contracts as claims are normally advised. 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. 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. Financial risk The Group’s principal financial instruments are financial assets available-for-sale, financial assets held for trading, financial assets held to maturity, 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: 2010 Less than 1 year 1 to 5 years More than 5 years Non-interest bearing items Total Effective Interest Rate on interest bearing assets USD USD USD USD USD (%) Trading investments - - - 1,679,234 1,679,234 Available-for-sale investments 12,553,656 43,472,492 15,821,051 76,781,879 148,629,078 Held to maturity investments - 1,690,141 3,000,000 Cash and short term deposits 96,245,129 5,444,160 - - 4,690,141 - 101,689,289 108,798,785 50,606,793 18,821,051 78,461,113 256,687,742 2009 Trading investments - - Available-for-sale investments 2,707,380 56,235,842 Held to maturity investments - 1,690,141 Cash and short term deposits 108,855,584 - 111,562,964 57,925,983 - - - - - 1,830,525 1,830,525 61,192,399 120,135,621 - 1,690,141 - 108,855,584 63,022,924 232,511,871 5.23 5.98 2.20 4.77 9.50 2.55 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. There is no significant difference between contractual repricing or maturity dates. The following table demonstrates the sensitivity of consolidated statement of income to reasonably possible changes in interest rates, with all other variables held constant. 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, 59%, 19%, 4% and 18% 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. (2009: 38%, 19%, 15% and 28% respectively) 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. 32 The sensitivity of the consolidated statement of income 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 December: 2010 2009 Increase/ decrease in basis points Effect on profit for the year +25 -50 +25 -50 USD 445,567 (891,134) 419,197 (838,994) 33 International General Insurance Holdings Limited | fInanCIaL statements notes to tHe ConsoLIdated fInanCIaL statements AT 31 DeceMBer 2010 International General Insurance Holdings Limited | fInanCIaL statements notes to tHe ConsoLIdated fInanCIaL statements AT 31 DeceMBer 2010 23. rIsK manaGement (continued) 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 the Group’s 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 consolidated statement of financial position. 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. The following table provides an aging analysis of receivables arising from insurance and reinsurance contracts past due but not impaired: Neither past due nor impaired Past due but not impaired Up to 90 days 91 to 180 days 181 to 270 days 271 to 360 days above 360 days USD USD USD USD USD Total USD 31 december 2010 59,491,199 13,407,158 6,581,777 2,249,866 2,536,041 1,719,715 85,985,756 31 December 2009 65,792,501 9,891,422 4,620,417 8,270,366 4,759,999 995,833 94,330,538 The following table provides an aging analysis of trade receivables arising from Specialty Mall customers past due but not impaired: Past due but not impaired Neither past due nor impaired USD 647,737 Up to 90 days USD 389,923 Total USD 1,037,660 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: 31 december 2010 Neither past due nor impaired Investment grade Non investment grade (satisfactory) Non investment grade (un-satisfactory) Past due or impaired Total USD USD USD USD USD 2010 Financial assets available-for-sale 75,145,910 73,483,168 Financial assets held for trading Financial assets held to maturity - 3,000,000 Insurance receivables Trade receivables Reinsurers’ share of unearned premium - - - 1,679,234 1,690,141 85,985,756 1,037,660 28,106,769 Reinsurers’ share of outstanding claims 27,246,336 7,509,902 Cash and bank balances 42,584,763 59,104,526 147,977,009 258,597,156 Neither past due nor impaired - - - - - - - - - - - - - - - - - - 148,629,078 1,679,234 4,690,141 85,985,756 1,037,660 28,106,769 34,756,238 101,689,289 406,574,165 Investment grade Non investment grade (satisfactory) Non investment grade (un-satisfactory) Past due or impaired USD USD USD USD Total USD 2009 Financial assets available-for-sale 54,447,039 65,688,582 Financial assets held for trading Financial assets held to maturity Insurance receivables Reinsurers’ share of unearned premium - - - - 1,830,525 1,690,141 94,330,538 21,561,486 Reinsurers’ share of outstanding claims 35,175,897 4,326,243 Cash and bank balances 66,153,710 42,701,874 155,776,646 232,129,389 - - - - - - - - - - - - - - - - 120,135,621 1,830,525 1,690,141 94,330,538 21,561,486 39,502,140 108,855,584 387,906,035 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 consolidated statement of income 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. 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 profit for the period and 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. Change in equity price Effect on equity Effect on profit Change in equity price Effect on equity 2010 2009 Effect on profit USD USD USD USD USD USD Amman Stock Exchange Saudi Arabia Dubai International Financial Exchange Other quoted 5% 5% 5% 5% 472,882 480,134 1,205,183 - - - 909,834 83,962 5% 5% 5% 5% 459,050 749,931 455,109 511,484 - - - 91,526 The Group 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 consolidated 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. 34 35 International General Insurance Holdings Limited | fInanCIaL statements notes to tHe ConsoLIdated fInanCIaL statements AT 31 DeceMBer 2010 International General Insurance Holdings Limited | fInanCIaL statements notes to tHe ConsoLIdated fInanCIaL statements AT 31 DeceMBer 2010 23. rIsK manaGement (continued) Maturity analysis of assets and liabilities The table below summarizes the maturity profile of the company’s financial liabilities at 31 December based on contractual undiscounted payments: The table below shows analysis of assets and liabilities analysed according to when they are expected to be recovered or settled: 2010 Insurance reserves Other liabilities Reinsurance payable Reinsurance deposits Unearned commissions total liabilities 2009 Insurance reserves Other liabilities Reinsurance payable Reinsurance deposits Unearned commissions total liabilities Less than one year USD More than one year USD No term USD Total USD 2010 194,596,835 64,865,612 2,698,012 31,083,276 - - - - 5,832,541 1,944,180 234,210,664 66,809,792 165,363,926 69,856,848 1,310,846 24,755,439 - - - 17,318,875 4,991,625 1,663,875 196,421,836 88,839,598 - - - - - - - - - - - - 259,462,447 2,698,012 31,083,276 - 7,776,721 301,020,456 235,220,774 1,310,846 24,755,439 17,318,875 6,655,500 285,261,434 assets Premises and equipment Intangible assets Investment in associated companies Investment property Investments Deferred policy acquisition costs Insurance receivables Trade receivables Other assets Reinsurers’ share of insurance reserves Cash and bank balances totaL assets eQUItY and LIaBILItIes Equity Issued share capital Foreign currency translation reserve Cumulative changes in fair values of investments Retained earnings total equity Liabilities Insurance reserves Other liabilities Reinsurance payable Reinsurance deposits Unearned commissions Total liabilities totaL eQUItY and LIaBILItIes Less than one year USD - - - - 12,553,656 19,297,853 84,266,041 1,037,660 12,185,890 47,147,255 96,245,129 More than one year USD 3,735,073 298,990 11,280,888 - 63,983,684 6,432,617 1,719,715 - - 15,715,752 5,444,160 No term USD - - - 28,996,126 78,461,113 - - - - - - Total USD 3,735,073 298,990 11,280,888 28,996,126 154,998,453 25,730,470 85,985,756 1,037,660 12,185,890 62,863,007 101,689,289 272,733,484 108,610,879 107,457,239 488,801,602 - - - - - - - - - - 143,375,678 143,375,678 (269,090) (269,090) 6,576,750 6,576,750 38,097,808 38,097,808 187,781,146 187,781,146 194,596,835 64,865,612 2,698,012 31,083,276 5,832,541 234,210,664 234,210,664 - - 1,944,180 66,809,792 66,809,792 - - - - - 259,462,447 2,698,012 31,083,276 7,776,721 301,020,456 187,781,146 488,801,602 36 37 International General Insurance Holdings Limited | fInanCIaL statements notes to tHe ConsoLIdated fInanCIaL statements AT 31 DeceMBer 2010 International General Insurance Holdings Limited | fInanCIaL statements notes to tHe ConsoLIdated fInanCIaL statements AT 31 DeceMBer 2010 23. rIsK manaGement (continued) 2009 assets Premises and equipment Intangible assets Investment in associated companies Investment property Investments Deferred policy acquisition costs Insurance receivables Other assets Cash and bank balances totaL assets eQUItY and LIaBILItIes Equity Issued share capital Foreign currency translation reserve Cumulative changes in fair values of investments Retained earnings total equity Liabilities Insurance reserves Other liabilities Reinsurance payable Reinsurance deposits Unearned commissions total liabilities Less than one year USD More than one year No term USD USD - - - - 3,720,305 475,438 11,032,729 - - - - 28,672,789 Total USD 3,720,305 475,438 11,032,729 28,672,789 3,683,154 43,782,095 76,191,038 123,656,287 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. Fair value The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation techniques: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities; Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either Level 3: directly or indirectly; and techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. Reinsurers’ share of insurance reserves 45,807,726 15,255,900 14,715,250 94,330,538 4,778,040 5,288,000 - - 108,855,584 - 272,170,292 79,554,467 104,863,827 - - - - - 20,003,250 94,330,538 4,778,040 61,063,626 108,855,584 456,588,586 - - - - - - - - - - 143,375,678 143,375,678 (208,050) 4,389,708 (208,050) 4,389,708 23,769,816 23,769,816 171,327,152 171,327,152 Held for trading Available-for-sale Held for trading Available-for-sale 31 December 2010 Level 1 USD Level 2 USD Total USD 1,679,234 138,831,026 140,510,260 - - - 1,679,234 138,831,026 140,510,260 31 December 2009 Level 1 USD Level 2 USD Total USD 1,830,525 110,337,569 112,168,094 - - - 1,830,525 110,337,569 112,168,094 165,363,926 69,856,848 1,310,846 24,755,439 17,318,875 4,991,625 - - - 1,663,875 213,740,711 71,520,723 - - - - - - 235,220,774 1,310,846 24,755,439 17,318,875 6,655,500 285,261,434 456,588,586 There were no transfers between Level 1 and 2 during the year or in either the years ended 31 December 2010 or 31 December 2009. There are no level 3 investments. Unquoted investments amounting to USD 14,488,193 (2009: USD 9,798,052) have been carried at cost in the absence of market price or other appropriate method from which to derive a fair value. totaL eQUItY and LIaBILItIes 213,740,711 71,520,723 171,327,152 38 39 International General Insurance Holdings Limited | CorPorate offICers IGI OFFICERS mr. Wasef Jabsheh, Vice Chairman and Chief Executive Officer, E-mail: wsj@iginsure.com mr. Peter smith, Chief Executive Officer, International General Insurance Company (UK) Ltd E-mail: peter.smith@iginsure.com mr. Waleed Jabsheh, Executive Vice President, E-mail: waleedjabsheh@iginsure.com mr. soumitra Biswas, Senior Vice President, Finance E-mail: soumitrabiswas@iginsure.com ms. rachel Butler, Senior Vice President, Operations E-mail: rachelbutler@iginsure.com mr. Ben Holborow, Vice President, Energy E-mail: benholborow@iginsure.com mr. simon Levy, Vice President, Reinsurance E-mail: simon.levy@iginsure.com mr. andrew Wood, Underwriter, Financial Institutions E-mail: awood@northstaruw.com mr. darren shearwood, Underwriter, General Aviation E-mail: dshearwood@northstaruw.com mr. Huib Van Zanten, Underwriter, Casualty E-mail: huib.vanzanten@iginsure.com mr. mark Cockayne, Underwriter, Engineering E-mail: mark.cockayne@iginsure.com mr. rod smith, Senior Executive Officer, International General Insurance Company (Dubai) Ltd E-mail: rodsmith@iginsure.com 40 41 International General Insurance Holdings Limited | IGI offICes International General Insurance Holdings Limited address: International General Insurance Company Limited address: P.o. Box 506646, dubai, United Arab Emirates Dubai International Financial Centre, Unit 1, Level 1, Gate Village 1, Dubai, UAE Telephone: +971 4 363 3520 +971 4 425 5675 Facsimile: IGI Underwriting Ltd. Co. address: P.o. Box 941428 Amman 11194, Jordan 74 Abdel Hamid Sharaf Street Shmeisani, Amman Jordan Telephone: +962 6 562 2009 +962 6 566 2085 Facsimile: Regulated by the Jordan Insurance Commission 44 Church street Hamilton HM 12 Bermuda Telephone: +1 (441) 295 3688 +1 (441) 295 2584 Facsimile: Regulated by the Bermuda Monetary Authority International General Insurance Company (UK) Ltd. address: 15-18 Lime street London EC3M 7AN England Telephone: +44 (0) 20 7220 0100 +44 (0) 20 7220 0101 Facsimile: Regulated by the UK Financial Services Authority north star Underwriting Limited address: 15-18 Lime street London EC3M 7AN England Telephone: +44 (0) 20 7220 0100 +44 (0) 20 7220 0101 Facsimile: Regulated by the UK Financial Services Authority 42 4343 

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