ANNUAL REPORT & ACCOUNTS 2017 1 ANNUAL REPORT ANNUAL REPORT & ACCOUNTS & ACCOUNTS 2017 2017 4 International General Insurance Holdings Limited Annual Report & Accounts 2017 CONTENTS About us Board of Directors Letter from the Board: focus on the future Financial highlights Financial statements & accounts 6 9 10 12 14 5 ABOUT US WE ARE A LEADING INTERNATIONAL SPECIALIST COMMERCIAL INSURER AND REINSURER, UNDERWRITING A DIVERSIFIED PORTFOLIO OF SPECIALTY LINES. Established in 2001, we are an entrepreneurial business with a worldwide portfolio. Registered in the Dubai International Financial Centre with operations in Bermuda, London, Amman, Kuala Lumpur and Casablanca, we are renowned for delivering outstanding levels of service to our clients and brokers. BUSINESS CLASSES ENERGY Upstream Energy Downstream Energy MARINE & AVIATION Ports & Terminals Marine Liability General Aviation PROPERTY Property Forestry Construction & Engineering Political Violence PROFESSIONAL & FINANCIAL LIABILITIES Financial Institutions Professional Indemnity Directors’ & Officers’ Casualty Legal Expenses REINSURANCE Treaty reinsurance 6 International General Insurance Holdings Limited Annual Report & Accounts 2017 International General Insurance Holdings Limited Annual Report & Accounts 2017 OFFICE LOCATIONS 3 1 2 4 5 6 1. BERMUDA 44 Church Street Hamilton HM 12 Bermuda 2. CASABLANCA 3. LONDON 32-42, Bd Abdelmoumen Residence Walili 25 4th Floor P.O. Box 20000 Casablanca Morocco 15-18 Lime Street London EC3M 7AN England 4. AMMAN 5. DUBAI 6. LABUAN 74 Abdel Hamid Sharaf St. P.O. Box 941428 Amman 11194 Jordan Office 606, Level 6, Tower 1 Al Fattan Currency House, Dubai International Financial Centre, P.O. Box 506646, Dubai United Arab Emirates Level 1, LOT 7, Block F Saguking Commercial Building Jalan Patau – Patau 87000 Labuan Malaysia KUALA LUMPUR Marketing Office 29th Floor, Menara TA One Jalan P Ramlee 50250 Kuala Lumpur Malaysia 7 International General Insurance Holdings Limited Annual Report & Accounts 2017 8 International General Insurance Holdings Limited Annual Report & Accounts 2017 BOARD OF DIRECTORS MOHAMMAD ABU GHAZALEH SOUMITRA BISWAS Chairman (Chairman and CEO, Fresh Del Monte Produce Inc. – Miami) WASEF JABSHEH CEO & Vice Chairman Director HANI JABSHEH Director (Co-founder Albawaba.com) KHALIFA AL MULHEM Director (Chairman, National Polypropylene Company Limited – Saudi Arabia) ABDULAZIZ AL BALUSHI Director (Group CEO of Oman International Development and Investment Company SAOG ‘OMINVEST’) DAVID KING Director (Non-executive Director of the Board of Directors of Forex Capital Markets Limited) 9 International General Insurance Holdings Limited Annual Report & Accounts 2017 LETTER FROM THE BOARD: FOCUS ON THE FUTURE A CLEAR STRATEGY FOR MEASURED GROWTH AND AN EMPHASIS ON PRUDENT UNDERWRITING TO DELIVER BOTTOM LINE PROFIT. THIS WAS THE MAIN GOAL FOR 2017, CONSIDERING THE OVERCAPACITY IN THE MARKET AND THE CONTINUAL EROSION OF RATES. Despite our best intentions to have another great year, Mother Nature had other ideas, bringing a stream of disasters, including two Caribbean Hurricanes, Irma and Maria, plus two Mexican earthquakes that resulted in the worst catastrophe year on record. We missed the Californian wildfires and Hurricane Harvey that caused major flooding in Houston. Whilst the company’s bottom line has been impacted by these catastrophes, we have accomplished a great deal in the year and are pleased to report that IGI has continued along its journey of profitable growth during these challenging market conditions. The Board fully understands that we are in the risk business and is supportive of the executive team. The results have not dampened our underwriters’ commitment to achieve an underwriting profit in the coming years. Despite a competitive trading and rate environment in 2017 and significant natural disasters throughout the year, our underwriters continued to produce premium growth, whilst maintaining disciplined underwriting. The Group announced a 19% increase in gross written premiums (GWP) from US$231.43 million in December 2016 to US$275.34 million in 2017, which demonstrated impressive growth in GWP in all of IGI’s major lines of business from last year. While 2017 saw the most expensive year for catastrophe losses, IGI’s exposure was limited to Property and Reinsurance inward treaty. Effective reinsurance protection helped to mitigate the severity of IGI’s losses at net level, indicated by a 31% increase in net incurred claims year- on-year, compared to a 95% increase in gross level claims year-on-year. Meanwhile, the Group posted a net profit of US$7.9 million in 2017 compared to US$32.1 million the year before. The Group saw its combined ratio reach up to 103% at the end of 2017, compared to 87.5% in 2016. 2017 CATASTROPHES Following the series of catastrophes in 2017, there was plenty of talk in the market about the need to return to sensible and prudent underwriting. Price increases, however, did not reflect this in the January 2018 renewals. Whilst there was some movement in pricing and terms and conditions, it was muted. However, the cost of these catastrophes is yet to be established and price adjustments may still materialize. The 2017 hurricane season illustrated the role the insurance and reinsurance sectors play in society and the support extended to clients. Helping companies and communities get back on their feet 10 In 2017, the Group announced a 19% increase in gross written premiums (GWP).” after disasters is what the industry does – bringing much needed cover and relief when nature strikes, allowing governments and businesses to get back up and running. IGI was proud to have paid its first claims related to Hurricane Irma just four days after the event. LOOKING AHEAD – A CLEAR STRATEGY FOR GROWTH IGI has been focusing on future-proofing the business, with ambitious plans to grow in new and existing markets via a measured profitable growth strategy. We have several initiatives in place as part of this strategic plan, which will continue to lay down the tracks for future success that is consistent with our philosophy of prudent underwriting and continued profitability. As part of this strategy, organisational changes in management structure have been implemented to efficiently deal with IGI’s growth ambitions, which includes enhancing the Group’s geographic platforms and expanding business lines and underwriting teams throughout our various offices. Meanwhile, we continue to look for ways to strengthen our offering in the Far East, with a planned growth strategy in Kuala Lumpur to expand the Asia hub. IMPORTANT ACCOMPLISHMENTS IN 2017 IGI has made a substantial investment in improving our risk management, actuarial and capital modelling systems as part of the Group’s investment in providing our underwriters with the support services required in today’s marketplace. The aim is to improve and stabilise earnings over time, and give the Group a more sophisticated capital management platform. We have good news on the ratings front as well. In July 2017, A.M. Best upgraded the company’s rating to A- (Excellent), with a Positive outlook, while Standard & Poor’s reaffirmed IGI’s financial strength ratings of ‘A-’ Stable Outlook. Meanwhile, IGI continues to increase its visibility in the market via various marketing campaigns and selected conferences to raise our profile in targeted markets. During 2017, IGI continued its support of cancer research and charitable organisations. IGI also promoted various local and international cultural initiatives and sporting activities such as the Equal Playing Field’s recent Guinness World Record soccer game on Mount Kilimanjaro in 2017, an initiative that challenges gender disparity in sports. Moving forward, we have a clear focus on driving improved performance in 2018 and beyond. We know that market challenges and pricing headwinds persist. Even with this expectation, 2018 is all about delivering fully on our strategy and plan. We would like to thank all our brokers and clients for their continued support and the confidence placed in IGI. We would also like to thank all our employees for their continued commitment and dedication, and we look forward to working together as a team to ensure we achieve our plans. In July 2017, A.M. Best upgraded the company’s rating to A- (excellent) with a positive outlook.” 11 International General Insurance Holdings Limited Annual Report & Accounts 2017 FINANCIAL HIGHLIGHTS NET UNDERWRITING PROFIT $25m INVESTMENT INCOME $12.7m SHAREHOLDERS’ EQUITY $312.4m GROSS WRITTEN PREMIUM $275.3m PROFIT FOR THE PERIOD/YEAR $7.9m POSITIVE OUTLOOK RATING A- by A.M. Best STABLE OUTLOOK RATING A- by S&P 12 International General Insurance Holdings Limited Annual Report & Accounts 2017 13 FINANCIAL STATEMENTS & ACCOUNTS INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF INTERNATIONAL GENERAL INSURANCE HOLDINGS LTD. OPINION We have audited the consolidated financial statements of International General Insurance Holdings Ltd (“the Company”) and its subsidiaries (together “the Group”), which comprise the consolidated statement of financial position as at 31 December 2017, and the consolidated statement of profit or loss, consolidated statement of other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Group as at 31 December 2017, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs). BASIS FOR OPINION We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards, are further described in the Auditor’s Responsibilities for the Audit of the consolidated Financial Statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the consolidated financial statements in United Arab Emirates, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. RESPONSIBILITIES OF MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE FOR THE CONSOLIDATED FINANCIAL STATEMENTS Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group’s financial reporting process. AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exist. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. 14 International General Insurance Holdings Limited Annual Report & Accounts 2017 • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exist, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. For Ernst and Young James Potter Partner 15 March 2018 Dubai, United Arab Emirates Ernst and Young Dubai P.O. Box 9267 28th floor, Al Saqr Business Tower Sheikh Zayed Road Dubai, United Arab Emirates Tel: +971 4 332 4000 dubai@ae.ey.com ey.com/mena 15 International General Insurance Holdings Limited Annual Report & Accounts 2017 CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 31 December 2017 ASSETS Property, premises and equipment Intangible assets Investment in associates Investment properties Investments Deferred policy acquisition costs Insurance receivables Other assets Deferred tax assets Reinsurance share of unearned premiums Reinsurance share of outstanding claims Deferred XOL premiums Cash and bank balances TOTAL ASSETS Notes 2017 USD 2016 USD 3 4 5 6 7 8 9 10 25 11 12 13 13,090,537 14,079,841 2,029,015 11,827,854 30,374,290 931,557 11,628,581 30,110,179 235,880,566 235,134,534 32,915,965 113,290,374 5,309,729 991,449 28,286,248 88,084,048 8,917,037 1,032,988 41,126,963 32,138,490 180,020,116 143,065,708 11,612,654 8,878,968 210,322,741 216,168,331 888,792,253 818,456,510 The attached notes 1 to 28 form part of these consolidated financial statements. 16 International General Insurance Holdings Limited Annual Report & Accounts 2017 EQUITY AND LIABILITIES EQUITY Issued share capital Additional paid in capital Foreign currency translation reserve Cumulative changes in fair value Retained earnings TOTAL EQUITY LIABILITIES Gross outstanding claims Gross unearned premiums Other liabilities Insurance payables Unearned commissions TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES Notes 2017 USD 2016 USD 14 15 12 11 17 18 19 143,375,678 143,375,678 2,773,000 (269,206) 2,773,000 (362,735) 15,708,956 10,994,423 150,817,319 154,424,965 312,405,747 311,205,331 383,227,441 335,171,294 156,694,025 133,670,895 7,093,914 5,084,049 19,017,107 25,032,842 10,354,019 8,292,099 576,386,506 507,251,179 888,792,253 818,456,510 The consolidated financial statements were authorised for issue in accordance with a resolution of the Board of Directors on 15 of March 2018. 17 International General Insurance Holdings Limited Annual Report & Accounts 2017 CONSOLIDATED STATEMENT OF PROFIT OR LOSS For the year ended 31 December 2017 Gross written 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 NET PREMIUMS EARNED Claims Reinsurers’ share of claims Commissions earned Policy acquisition costs NET UNDERWRITING RESULT Net investment income Net share of profit (loss) from associates General and administrative expenses Other (loss) income – net Gain (loss) on exchange PROFIT BEFORE TAX Tax expense PROFIT FOR THE YEAR Notes 2017 USD 2016 USD 11 11 11 11 12 12 19 8 20 5 21 22 275,340,636 231,427,789 (23,023,130) 9,892,639 252,317,506 241,320,428 (106,497,204) (82,759,821) 8,988,473 (1,657,288) (97,508,731) (84,417,109) 154,808,775 156,903,319 (252,154,218) (129,113,544) 158,651,778 16,709,347 57,657,321 15,583,880 (52,941,057) (50,339,568) 25,074,625 50,691,408 12,546,694 12,760,339 199,274 84,694 (29,853,666) (31,007,651) (2,008,772) 14,292 1,884,885 (1,410,707) 7,843,040 31,132,375 25 19,368 936,588 7,862,408 32,068,963 The attached notes 1 to 28 form part of these consolidated financial statements. 18 International General Insurance Holdings Limited Annual Report & Accounts 2017 CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME For the year ended 31 December 2017 PROFIT FOR THE YEAR OTHER COMPREHENSIVE INCOME TO BE RECLASSIFIED TO PROFIT OR LOSS IN SUBSEQUENT PERIODS: Fair value changes Currency translation differences OTHER COMPREHENSIVE INCOME FOR THE YEAR Notes 2017 USD 2016 USD 7,862,408 32,068,963 4,714,533 93,529 4,808,062 8,710,046 (101,418) 8,608,628 TOTAL COMPREHENSIVE INCOME FOR THE YEAR 12,670,470 40,677,591 19 International General Insurance Holdings Limited Annual Report & Accounts 2017 CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 31 December 2017 OPERATING ACTIVITIES Profit before tax ADJUSTMENTS FOR: Depreciation and amortization Gain on sale of available-for-sale investments Provision for doubtful debts Impairment (reversal of impairment) of investments Gain on sale of premises and equipment Fair value gain on investment property Loss on revaluation of held for trading investments Dividends and interest income Net Share of (profit) loss from associates Net foreign exchange differences CASH (USED IN) FROM OPERATIONS BEFORE WORKING CAPITAL CHANGES WORKING CAPITAL ADJUSTMENTS Reinsurance share of unearned premiums Reinsurance share of outstanding claims Deferred XOL premium Gross outstanding claims Gross unearned premiums Deferred policy acquisition costs Insurance receivables Other assets Unearned commission Insurance payables Other liabilities Notes 2017 USD 2016 USD 3,4 20 9 20 20 20 20 5 7,843,040 31,132,375 1,485,134 (3,133,556) – 71,863 (18,967) – 582,816 (2,692,435) – 250,000 (13,304) (1,458,395) 245,991 (95,582) (9,616,437) (10,123,067) (199,274) (1,884,885) (6,055,294) (84,694) 1,410,707 19,756,624 19,756,624 (8,988,473) 1,657,288 (36,954,408) (29,866,739) (2,733,686) 48,056,147 23,023,130 (4,629,717) (25,206,326) 3,761,745 2,061,920 (6,015,735) 2,009,865 (60,428) 34,503,696 (9,892,639) 985,932 5,585,181 956,788 (549,824) 7,275,967 (255,563) NET CASH FLOWS (USED IN) FROM OPERATING ACTIVITIES BEFORE TAX (11,670,832) 30,096,283 INCOME TAX PAID 25 – – NET CASH FLOWS (USED IN) FROM OPERATING ACTIVITIES AFTER TAX (11,670,832) 30,096,283 The attached notes 1 to 28 form part of these consolidated financial statements. 20 International General Insurance Holdings Limited Annual Report & Accounts 2017 INVESTING ACTIVITIES Purchase of property, premises and equipment Proceeds from sale of premises and equipment Purchase of intangible assets Purchase of available-for-sale investments Proceeds from maturity of held to maturity investments Purchase of investment property Dividends from associated companies Notes 2017 USD 2016 USD 3 4 6 5 (448,954) (11,465,562) 50,394 (1,175,761) 13,304 (618,927) (49,829,438) (75,984,676) 3,000,000 (264,111) – – (40,019) 254,964 Proceeds from sale of available-for-sale investments 53,873,230 37,434,405 Proceeds from redemption of trading securities Dividends and interest income Term deposits from 3 months to 1 year 81,984 20 10,123,067 13,081 9,616,437 16,338,936 (38,205,415) NET CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES 31,749,347 (78,982,408) FINANCING ACTIVITIES Dividends paid Net cash flows used in financing activities NET CHANGE IN CASH AND CASH EQUIVALENTS Net foreign exchange differences 16 (11,470,054) (14,337,567) (11,470,054) (14,337,567) 8,608,461 1,884,885 (63,223,692) (1,410,707) Cash and cash equivalents at the beginning of the year 106,112,367 170,746,766 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 13 116,605,713 106,112,367 21 International General Insurance Holdings Limited Annual Report & Accounts 2017 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY For the year ended 31 December 2017 Issued share capital USD Additional paid in capital USD Foreign currency translation reserve USD Cumulative change in fair value USD Retained earnings USD Total USD AT 1 JANUARY 2017 143,375,678 2,773,000 (362,735) 10,994,423 154,424,965 311,205,331 Profit for the year Other comprehensive income Total comprehensive income Dividends paid during the year (note 16) – – – – – – – – 7,862,408 7,862,408 93,529 4,714,533 – 4,808,062 93,529 4,714,533 7,862,408 12,670,470 – – (11,470,054) (11,470,054) AT 31 DECEMBER 2017 143,375,678 2,773,000 (269,206) 15,708,956 150,817,319 312,405,747 AT 1 JANUARY 2016 143,375,678 2,773,000 (261,317) 2,284,377 136,693,569 284,865,307 Profit for the year Other comprehensive income Total comprehensive income Dividends paid during the year (note 16) – – – – – – – – 32,068,963 32,068,963 (101,418) 8,710,046 – 8,608,628 (101,418) 8,710,046 32,068,963 40,677,591 – – (14,337,567) (14,337,567) AT 31 DECEMBER 2016 143,375,678 2,773,000 (362,735) 10,994,423 154,424,965 311,205,331 The attached notes 1 to 28 form part of these consolidated financial statements. 22 International General Insurance Holdings Limited Annual Report & Accounts 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2017 1. ACTIVITIES International General Insurance Holdings Ltd (“the Company”) is incorporated as a company limited by shares under the Companies Law, DIFC Law No. 2 of 2009 on 7 May 2006 and is engaged in the business of insurance and re-insurance. The Company’s registered office is at unit 1, Gate Village 01, P. O. Box 506646, Dubai International Financial Centre. The Company and its subsidiaries (together “the Group”) operate in the United Arab Emirates, Bermuda, United Kingdom, Jordan, Morocco, Malaysia, and Cayman Island. 2. BASIS OF PREPARATION The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB) and applicable requirements of UAE laws. 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 assets available-for-sale, financial assets held for trading and investment properties. BASIS OF CONSOLIDATION The financial statements of the subsidiaries are prepared for the same reporting year as the Group, using consistent accounting policies. The consolidated financial statements comprise the financial statements of International General Insurance Holdings Ltd. and its subsidiaries as at 31 December. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has: • Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee) • Exposure, or rights, to variable returns from its involvement with the investee, and • The ability to use its power over the investee to affect its returns When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: • The contractual arrangement with the other vote holders of the investee • Rights arising from other contractual arrangements • The Group’s voting rights and potential voting rights The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary. Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. 23 International General Insurance Holdings Limited Annual Report & Accounts 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) At 31 December 2017 A change in the ownership interest of a subsidiary, without a change of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it: • De-recognises the assets (including goodwill) and liabilities of the subsidiary; • De-recognises the carrying amount of any non-controlling interest; • De-recognises the cumulative translation differences, recorded in equity, if any; • Recognises the fair value of the consideration received; • Recognises the fair value of any investment retained; • Recognises any surplus or deficit in profit or loss; and • Reclassifies the parent’s share of components previously recognised in other comprehensive income to profit or loss or retained earnings, as appropriate. 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. The Group has the following subsidiaries: Country of incorporation Ownership Activity 2017 2016 International General Insurance Underwriting Jordan Underwriting agency 100% 100% North Star Underwriting Limited United Kingdom Underwriting agency 100% 100% International General Insurance Co. Ltd. Bermuda Reinsurance and insurance 100% 100% The following entities are wholly owned by the subsidiary International General Insurance Co. Ltd. Bermuda International General Insurance Company Ltd. Labuan Branch International General Insurance Company (UK) Limited Malaysia Reinsurance and insurance 100% 100% United Kingdom Reinsurance and insurance 100% 100% International General Insurance Company Dubai Ltd. United Arab Emirates Insurance intermediation and insurance management 100% 100% Specialty Malls Investment Co. Jordan IGI Services Limited Cayman Island Real estate properties development and lease Owning and chartering aircraft 100% 100% 100% 100% 24 International General Insurance Holdings Limited Annual Report & Accounts 2017 CHANGES IN ACCOUNTING POLICIES Amendments to IAS 7 Statement of Cash Flows: Disclosure Initiative Limited amendments which require entities to provide disclosures about changes in their liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes (such as foreign exchange gains or losses). However, the adoption of these amendments have no impact on the Group’s consolidated financial statements. Amendments to IAS 12 Income Taxes: Recognition of Deferred Tax Assets for Un-recognised Losses Limited amendments to clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference and some other limited amendments, the adoption of these amendments have no impact on the Group’s consolidated financial statements. STANDARDS ISSUED BUT NOT YET EFFECTIVE Standards issued but not yet effective up to the date of issuance of the Group’s financial statements are listed below. This listing of standards and interpretations issued are those that the Group reasonably expects to have an impact on disclosures, financial position or performance when applied at a future date. The Group intends to adopt these standards when they become effective. IFRS 9 Financial Instruments In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. The new version of IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Except for hedge accounting, retrospective application is required; but providing comparative information is not mandatory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions. The Group plans to adopt the new standard on the effective date and will not restate comparative information. (a) Classification and Measurement The impact on the Group balance sheet or equity on applying the new classification and measurement category of IFRS 9 will be as shown in the table overleaf. The majority of the Quoted equity shares currently held as available-for-sale (AFS) with gains and losses recorded in OCI will be measured at fair value through profit or loss, which will increase volatility in recorded profit or loss. The AFS reserve of USD 16,111,838 related to those securities which is currently presented as accumulated OCI, will be reclassified to retained earnings. Measurement of debt securities are expected to continue at fair value through OCI under IFRS 9 as the Group expects not only to hold the assets to collect contractual cash flows, but also to sell a significant amount on a relatively frequent basis. 25 International General Insurance Holdings Limited Annual Report & Accounts 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) At 31 December 2017 The equity shares in non-listed companies are intended to be held for the near future. An impairment losses amounted to USD 3,278,860 that were recognised in profit or loss during prior periods for these investments will be reclassified to accumulated OCI. The Group will apply the option to present fair value changes in OCI for those investments. The net impact of IFRS 9 will be a reclassification between retained earnings and cumulative changes in fair value with total amount of USD 19,390,698 with no impact on total equity. The following tables shows the original measurement categories in accordance with IAS 39 and the new measurement categories under IFRS 9 for the Group’s financial assets as at 31 December 2017: IAS 39 Classification Held to maturity – bonds and debt securities Held for trading equities Available for sale – bonds and debt securities Available for sale – quoted equities Available for sale – funds Available for sale – unquoted equities Measurement USD 3,987,288 160,420 185,806,397 32,017,989 7,971,825 5,936,647 235,880,566 IFRS 9 Classification Amortized cost Measurement USD 3,987,288 Fair value through profit and loss Fair value through other comprehensive income Fair value through profit and loss Fair value through other comprehensive income Fair value through profit and loss Fair value through other comprehensive income 160,420 185,806,397 26,599,594 5,418,395 7,971,825 5,936,647 235,880,556 (b) Impairment IFRS 9 requires the Group to record expected credit losses on all of its debt instrument financial assets classified as amortized cost or FVTOCI, and trade receivables, either on a 12-month or lifetime basis. The Group will apply the simplified approach and record lifetime expected losses on all trade receivables. The Group has estimated that the additional provision to be recorded resulting from the expected credit loss from its trade receivables and its debt instrument financial assets classified as amortized cost or FVTOCI will not be material compared to the current requirements of provisioning for doubtful trade receivables and impairment for debt instrument financial assets classified as amortized cost or FVTOCI. Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts In September 2016, the IASB issued amendments to IFRS 4 to address issues arising from the different effective dates of IFRS 9 and the upcoming new insurance contracts standard (IFRS 17). The amendments introduce two alternative options for entities issuing contracts within the scope of IFRS 4, a temporary exemption from implementing IFRS 9 to annual periods beginning before 1 January 2021 at latest and an overlay approach that allows an entity applying IFRS 9 to reclassify between profit or loss and other comprehensive income an amount that results in the profit or loss at the end of the reporting period for the designated financial assets being the same as if an entity had applied IAS 39 to these designated financial assets. 26 International General Insurance Holdings Limited Annual Report & Accounts 2017 IFRS 17 Insurance Contracts IFRS 17 provides a comprehensive model for insurance contracts covering the recognition and measurement and presentation and disclosure of insurance contracts and replaces IFRS 4 – Insurance Contracts. The standard applies to all types of insurance contracts (i.e. life, non-life, direct insurance and re-insurance), regardless of the type of entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features. The standard general model is supplemented by the variable fee approach and the premium allocation approach. The new standard will be effective for annual periods beginning on or after 1 January 2021. Early application is permitted. IFRS 15 Revenue from Contracts with Customers IFRS 15 specifies the accounting treatment for all revenue arising from contracts with customers. It applies to all entities that enter into contracts to provide goods or services to their customers, unless the contracts are in the scope of other IFRSs, such as IAS 17 Leases. IFRS 15 supersedes IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers; and SIC-31 Revenue—Barter Transactions Involving Advertising Services. The standard is effective for annual periods beginning on or after 1 January 2018, and early adoption is permitted. During 2017, the Group has performed an impact assessment of IFRS 15. This assessment is based on currently available information and may be subject to changes arising from further reasonable and supportable information being made available to the Group in 2018 when the Group adopts IFRS 15, whereas, The Group does not expect a material impact on its balance sheet or equity on applying the requirements of IFRS 15. Amendments to IFRS 10 and IAS 28:Sale or Contribution of Assets between an Investor and Its Associate or Joint Venture The amendments address the conflict between IFRS 10 and IAS 28 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that the gain or loss resulting from the sale or contribution of assets that constitute a business, as defined in IFRS 3, between an investor and its associate or joint venture, is recognised in full. Any gain or loss resulting from the sale or contribution of assets that do not constitute a business, however, is recognised only to the extent of unrelated investors’ interests in the associate or joint venture. IFRS 2 Classification and Measurement of Share-based Payment Transactions – Amendments to IFRS 2 The IASB issued amendments to IFRS 2 Share-based Payment that address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash settled to equity settled. Entities may apply the amendments prospectively and are effective for annual periods beginning on or after 1 January 2018, with early application permitted. IFRS 16 Leases During January 2016, the IASB issued IFRS 16 “Leases” which sets out the principles for the recognition, measurement, presentation and disclosure of leases. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. IFRS 16 introduced a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. The new standard will be effective for annual periods beginning on or after 1 January 2019. Early application is permitted. 27 International General Insurance Holdings Limited Annual Report & Accounts 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) At 31 December 2017 Transfers of Investment Property (Amendments to IAS 40) The amendments clarify when an entity should transfer property, including property under construction or development into, or out of investment property. The amendments state that a change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. A mere change in management’s intentions for the use of a property does not provide evidence of a change in use. Entities should apply the amendments prospectively and effective for annual periods beginning on or after 1 January 2018. Early application of the amendments is permitted and must be disclosed. IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration The interpretation clarifies that in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. Entities may apply the amendments on a fully retrospective or prospective basis. The new interpretation will be effective for annual periods beginning on or after 1 January 2018. Early application of interpretation is permitted and must be disclosed. IFRIC Interpretation 23 Uncertainty over Income Tax Treatment The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IAS 12 and does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. An entity must determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments. The interpretation is effective for annual reporting periods beginning on or after 1January 2019, but certain transition reliefs are available. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenue recognition Gross written premiums Gross written premiums comprise the total premiums receivable for the whole period of cover provided by contracts entered into during the accounting period. They are recognised on the date on which the policy commences. Premiums include any adjustments arising in the accounting period for premiums receivable in respect of business written in prior accounting periods. Rebates that form part of the premium rate, such as no-claim rebates, are deducted from the gross premium; others are recognised as an expense. Premiums also include estimates for pipeline premiums, representing amounts due on business written but not yet notified. The Group generally estimates the pipeline premium based on management’s judgment and prior experience. Unearned premiums are those proportions of premiums written in a year that relate to periods of risk after the reporting date. Unearned premiums are calculated on a pro rata basis. The proportion attributable to subsequent periods is deferred as a provision for unearned premiums. Reinsurance premiums Gross general reinsurance premiums written comprise the total premiums payable for the whole cover provided by contracts entered into the period and are recognised on the date on which the policy incepts. Premiums include any adjustments arising in the accounting period in respect of reinsurance contracts incepting in prior accounting periods. Unearned reinsurance premiums are those proportions of premiums written in a year that relate to periods of risk after the reporting date. Unearned reinsurance premiums are deferred over the term of the underlying direct insurance policies for risks-attaching contracts and over the term of the reinsurance contract for losses occurring contracts. 28 International General Insurance Holdings Limited Annual Report & Accounts 2017 Commission income Insurance and investment contract policyholders are charged for policy administration services, investment management services, surrenders and other contract fees. These fees are recognised as revenue over the period in which the related services are performed. If the fees are for services provided in future periods, then they are deferred and recognised over those future periods. 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. 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. Policy acquisition costs Policy acquisition costs represent commissions paid to intermediaries and other direct costs incurred in relation to the acquisition and renewal of insurance contracts which are deferred and expensed over the terms of the insurance contracts to which they relate as premiums are earned. Liability adequacy test At each 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 unearned premiums (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 be paid within one year of the statement of financial position date. Reinsurance The Group cedes insurance risk in the normal course of business for all of its businesses. Reinsurance assets represent balances due from reinsurance companies. Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision or settled claims associated with the reinsurer’s policies and are in accordance with the related reinsurance contract. Reinsurance assets are reviewed for impairment at each reporting date, or more frequently, when an indication of impairment arises during the reporting year. Impairment occurs when there is objective evidence as a result of an event that occurred after initial recognition of the reinsurance asset that the Group may not receive all outstanding amounts due under the terms of the contract and the event has a reliably measurable impact on the amounts that the Group will receive from the reinsurer. The impairment loss is recorded in the consolidated statement of profit or loss. Gains or losses on buying reinsurance are recognised in the consolidated statement of profit or loss immediately at the date of purchase and are not amortised. Ceded reinsurance arrangements do not relieve the Group from its obligations to policyholders. The Group also assumes reinsurance risk in the normal course of business for non-life insurance contracts where applicable. Premiums and claims on assumed reinsurance are recognised as revenue or 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 estimated in a manner consistent with the related reinsurance contract. Premiums and claims are presented on a gross basis for both ceded and assumed reinsurance. Reinsurance assets or liabilities are de-recognised when the contractual rights are extinguished or expire or when the contract is transferred to another party. Reinsurance contracts that do not transfer significant insurance risk are accounted for directly through the statement of financial position. These are deposit assets or financial liabilities that are recognised based on the consideration paid or received less any explicit identified premiums or fees to be retained by the reinsured. 29 International General Insurance Holdings Limited Annual Report & Accounts 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) At 31 December 2017 Interest income Interest income included in investment income 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 income Dividend revenue included in investment income is recognised when right to receive the payment is established. Chartered flights revenues Chartered flights revenues are recognized when the transportation is provided. Property, premises and equipment Property, premises and equipment are stated at cost less accumulated depreciation and any impairment in value. Depreciation is calculated on a straight-line basis over the estimated useful lives using the following are the estimated useful lives: Office buildings Aircraft Office furniture Computers Equipment Leasehold improvement Vehicles Years 20 12.5 5 3 4 5 5 An item of property, plant and equipment and any significant part initially recognised is de-recognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated statement of profit or loss when the asset is de-recognised. 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 profit or loss as an expense. 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 profit or loss. 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. 30 International General Insurance Holdings Limited Annual Report & Accounts 2017 Work in progress assets Work in progress assets are stated at cost, and include other direct costs and it is not depreciated until it is available for use. 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 profit or loss. 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 original effective interest rates. 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. Impairment is recognised in the income statement. If, in a subsequent period, the amount of the impairment loss decreases, the carrying value of the asset is increased to its recoverable amount. The amount of the reversal is recognised in the income statement except for equity instruments classified as available for sale investments for which the reversal is recognized in the statement of other comprehensive income. 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 associates The Group’s investment in its associates is accounted for using the equity method of accounting. An associate is an entity in which the Group has significant influence and which is neither a subsidiary nor a joint venture. Under the equity method, the investment in the associate is carried in the consolidated statement of financial position at cost plus post-acquisition changes in the Group’s share of net assets of the associate. Goodwill relating to an associate is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. The consolidated statement of profit or loss reflects the share of the results of operations of the associate. Where there has been a change recognised directly in the equity of the associate, the Group recognises its share of any changes and discloses this, when applicable, in the consolidated statement of changes in equity. Profits or losses resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associate. The share of profit of the associate is shown on the face of the consolidated statement of profit or loss. This is profit attributable to equity holders of the associate and, therefore, is profit after tax and non-controlling interests in the subsidiaries of the associates. The financial statements of the associate are prepared for the same reporting period as the Group. Where necessary, adjustments are made to bring its accounting policies in line with the Group’s. After application of the equity method, the Group determines whether it is necessary to recognise an additional impairment loss on the Group’s investment in associates. The Group determines at each reporting date, whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount in the ‘share of profit of an associate’ in the consolidated statement of profit or loss. 31 International General Insurance Holdings Limited Annual Report & Accounts 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) At 31 December 2017 Upon loss of significant influence over the associate, the Group measures and recognises any remaining investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the remaining investment and proceeds from disposal is recognised in profit or loss. 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 profit or loss in the period in which they arise. Fair values are evaluated annually by an accredited external, independent valuer. Investment properties are de-recognised 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 profit or loss 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. Financial assets 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: Insurance receivables Insurance companies and intermediaries receivables are recognised when due and measured on initial recognition at the fair value of the consideration received or receivable. Subsequent to initial recognition, insurance receivables are measured at amortised cost, using the effective interest rate method. The carrying value of insurance receivables is reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable, with the impairment loss recorded in the consolidated income statement. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include 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 consolidated statement of financial position at fair value with changes in fair value recognised in the consolidated statement of profit or loss. The Group has not designated any financial assets upon initial recognition as at fair value through consolidated statement of profit or loss. 32 International General Insurance Holdings Limited Annual Report & Accounts 2017 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 profit or loss. 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 de-recognised, 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 profit or loss and removed from the available- for-sale reserve. Cash and cash equivalents Cash and cash equivalents consist of cash in hand, bank balances, and short-term deposits with an original maturity of three months or less after deducting bank overdraft balances and short-term deposits with an original maturity ranges from three months to one year. 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. Cash settled – Share based payment plan A phantom share option plan linked to the value of an ordinary share of the Group as approved by the Board of directors has been declared during 2011. The scheme is applicable to senior executives with more than 12 months service. The amount of bonus is determined by reference to the increase in the book value of shares covered by the option. No shares are actually issued or transferred to the option holder on the exercise of the option. The options vest equally over a span of 5 years from the grant date. The bonus due amounts to the excess of book value on vesting date over grant date plus an additional 20% on the value of the excess. Treasury shares Own equity instruments that are reacquired (treasury shares) are recognised at cost and deducted from equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Any difference between the carrying amount and the consideration, if reissued, is recognised in share premium. 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 profit or loss unless required or permitted by any accounting standard or interpretation. 33 International General Insurance Holdings Limited Annual Report & Accounts 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) At 31 December 2017 Foreign currencies The Group’s consolidated financial statements are presented in United States Dollars, which is also the functional currency of the Group. 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 re-translated at the functional currency spot rate of exchange ruling at the reporting date. All differences are taken to the consolidated statement of profit or loss. 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 profit or loss are translated at exchange rates prevailing at the date of the transactions. The exchange differences arising on the translation are recognised in consolidated statement of 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 profit or loss. Taxation The charge or credit for taxation is based upon the profit or loss for the year and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes. Current income tax Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date in the countries were the Group operates and generates taxable income. Deferred tax Deferred tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credit and unused tax losses can be utilized. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Leasing The Group has no finance lease arrangements. The determination of whether an arrangement is a lease, or contains a lease, is based on the substance of the arrangement at the inception date and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset, even if that right is not explicitly specified in an arrangement. 34 International General Insurance Holdings Limited Annual Report & Accounts 2017 Group as a lessee Finance leases that transfer to the Group substantially all of the risks and benefits incidental to ownership of the leased item, are capitalised at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance cost in the consolidated income statement. Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term. Leases that do not transfer to the Group substantially all the risks and benefits incidental to ownership of the leased items are operating leases. Operating lease payments are recognised as an expense in the income statement on a straight line basis over the lease term. Contingent rentals are recognised as an expense in the period in which they are incurred. Group as a lessor Leases in which the Group does not transfer substantially all of the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as rental income. Rental income from operating leases is recognised on a straight-line basis over the term of lease. Fair values Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: In the principal market for the asset or liability, or In the absence of a principal market, in the most advantageous market for the asset or liability The principal or the most advantageous market must be accessible to by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable 35 International General Insurance Holdings Limited Annual Report & Accounts 2017 For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. The Group’s management determines the policies and procedures for both recurring fair value measurement, such as unquoted available for sales financial assets, and for non-recurring measurement, such as assets held for distribution in discontinued operation. At each reporting date, the management analyses the movements in the values of assets and liabilities which are required to be re-measured or re-assessed as per the Group’s accounting policies. For this analysis, the management verifies the major inputs applied in the latest valuation by agreeing the information in the valuation computation to contracts and other relevant documents. For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. 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 consolidated financial statements: Operating lease commitments-group as lessor The Group has entered into commercial property leases on its premises and equipment. The Group, as a lessor, has determined, based on an evaluation of the terms and conditions of the arrangements, that it retains all the significant risks and rewards of ownership of its property and so accounts for them as operating leases. Going concern The Group’s management has made an assessment of the Group’s ability to continue as a going concern and is satisfied that the Group has the resources to continue in business for the foreseeable future. Furthermore, the management is not aware of any material uncertainties that may cast significant doubt upon the Group’s ability to continue as a going concern. Therefore, the financial statements continue to be prepared on the going concern basis. 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 until maturity. All other investments are classified as financial assets available-for-sale. 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: 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. 36 International General Insurance Holdings Limited Annual Report & Accounts 2017 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. Impairment losses on available for sale investments The Group treats available-for-sale equity investments 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. Where fair values are not available, the recoverable amount of such investment is estimated to test for impairment. 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. Impairment losses on held-to-maturity investments The Group reviews its individually significant held-to-maturity investments at each statement of financial position date to assess whether an impairment loss should be recorded in the consolidated statement of profit or loss. In particular, management judgement is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. These estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance. Impairment losses on receivables Receivables that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. This assessment of impairment requires judgment. In making this judgment, the Company evaluates credit risk characteristics that consider past-due status being indicative of the inability to pay all amounts due as per contractual terms. 37 International General Insurance Holdings Limited Annual Report & Accounts 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) At 31 December 2017 3. PROPERTY, PREMISES AND EQUIPMENT Office buildings USD Aircraft USD Office furniture USD Computers USD Equipment USD Leasehold improvements USD Work in progress* USD COST At 1 January 2017 Additions Written off and disposals Transfers 2,661,944 7,819 – – At 31 December 2017 2,669,763 – 93,554 – 11,196,851 11,290,405 1,439,242 1,224,416 1,177,342 11,239,732 18,959,862 67,268 – 7,321 159,565 (6,359) 35,560 – (11,239,732) 1,513,831 1,413,182 274,433 1,177,342 964,531 635,188 69,031 – 704,219 – 1,173,601 1,039,597 903,232 – 99,446 – 150,271 (5,751) 903,232 1,273,047 1,184,117 272,606 1,177,341 1,965,544 10,387,173 240,784 229.065 272,105 2,328 – – 267,238 5,368 – 1,827 270,669 1,436 – – – 272,105 242,136 25,102 – – – – 1 – 1,139,393 37,948 1,123,884 3,240 50,218 1,177,342 1,079,205 60,188 – Vehicles USD 945,081 118,420 (98,970) 625,004 141,535 (68,151) 698,388 266,143 986,354 (41,273) – – 541,451 124,826 (41,273) 625,004 Total USD 448,954 (105,329) – 19,303,487 4,880,021 1,406,831 (73,902) 6,212,950 13,090,537 7,535,573 11,465,562 (41,273) – 4,419,932 501,362 (41,273) 4,880,021 – – – – – – – – – – – – – 71,245 11,239,732 (71,245) – – – – – – – – – – 1,365,278 52,937 – 21,027 1,061,492 162,924 – – 1,439,242 1,224,416 945,081 11,239,732 18,959,862 1,081,054 92,547 – 928,740 110,857 – 1,173,601 1,039,597 267,238 1,139,393 265,641 184,819 4,867 37,949 320,077 11,239,732 14,079,841 DEPRECIATION At 1 January 2017 Deprecation for the year Written off and disposals At 31 December 2017 NET CARRYING AMOUNT At 31 December 2017 COST At 1 January 2016 Additions Written off and disposals Transfers 2,656,651 5,293 – – At 31 December 2016 2,661,944 DEPRECIATION At 1 January 2016 Deprecation for the year Written off and disposals At 31 December 2016 NET CARRYING AMOUNT At 31 December 2016 547,346 87,842 – 635,188 2,026,756 The depreciation charge for the year of USD 503,599 (2016: USD 501,362) has been included in general and administrative expenses. Fully depreciated property, premises and equipment still in use amounted to USD 3,881,072 as at 31 December 2017 (2016: 3,953,453). * The aircraft is registered in the name of IGI Services Limited being a company registered in Cayman Islands and wholly owned subsidiary of IGI Co Ltd. The aircraft was put in use on 1 January 2017 after the completion of the pre-commissioning testing. The depreciation of the aircraft amounted to USD 903,232 was charged to the other (loss) income (note 22). 38 International General Insurance Holdings Limited Annual Report & Accounts 2017 – – – (11,239,732) Vehicles USD 945,081 118,420 (98,970) Work in progress* USD Total USD 11,239,732 18,959,862 Office buildings USD Aircraft USD Office furniture USD Computers USD Equipment USD Leasehold improvements USD 272,105 2,328 – – 1,177,342 – – – At 31 December 2017 2,669,763 1,513,831 1,413,182 274,433 1,177,342 964,531 635,188 69,031 903,232 1,173,601 1,039,597 267,238 1,139,393 99,446 – 150,271 (5,751) 5,368 – 37,948 – 704,219 903,232 1,273,047 1,184,117 272,606 1,177,341 625,004 141,535 (68,151) 698,388 1,965,544 10,387,173 240,784 229.065 1,827 1 266,143 – – – – – – 270,669 1,436 – – 1,123,884 986,354 71,245 3,240 – 50,218 – 11,239,732 (41,273) – – (71,245) COST At 1 January 2017 Additions Written off and disposals Transfers DEPRECIATION At 1 January 2017 Deprecation for the year Written off and disposals At 31 December 2017 NET CARRYING AMOUNT At 31 December 2017 COST At 1 January 2016 Additions Written off and disposals Transfers DEPRECIATION At 1 January 2016 Deprecation for the year Written off and disposals At 31 December 2016 NET CARRYING AMOUNT At 31 December 2016 2,661,944 7,819 – – – – – – 2,656,651 5,293 547,346 87,842 635,188 – – – – – – – – – – – – – – 1,439,242 1,224,416 67,268 – 7,321 159,565 (6,359) 35,560 93,554 11,196,851 11,290,405 1,365,278 52,937 – 21,027 1,081,054 92,547 – 1,061,492 162,924 – – – 928,740 110,857 At 31 December 2016 2,661,944 1,439,242 1,224,416 272,105 1,177,342 945,081 11,239,732 18,959,862 1,173,601 1,039,597 267,238 1,139,393 242,136 25,102 – 1,079,205 60,188 – 541,451 124,826 (41,273) 625,004 – – – – 4,419,932 501,362 (41,273) 4,880,021 2,026,756 265,641 184,819 4,867 37,949 320,077 11,239,732 14,079,841 The depreciation charge for the year of USD 503,599 (2016: USD 501,362) has been included in general and administrative expenses. Fully depreciated property, premises and equipment still in use amounted to USD 3,881,072 as at 31 December 2017 (2016: 3,953,453). * The aircraft is registered in the name of IGI Services Limited being a company registered in Cayman Islands and wholly owned subsidiary of IGI Co Ltd. The aircraft was put in use on 1 January 2017 after the completion of the pre-commissioning testing. The depreciation of the aircraft amounted to USD 903,232 was charged to the other (loss) income (note 22). 39 448,954 (105,329) – 19,303,487 4,880,021 1,406,831 (73,902) 6,212,950 13,090,537 7,535,573 11,465,562 (41,273) – International General Insurance Holdings Limited Annual Report & Accounts 2017 4. INTANGIBLE ASSETS COST Computer software / licenses USD 2017 Work in progress* USD Computer software / licenses USD Total USD 2016 Work in progress* USD Total USD Beginning balance 1,168,633 700,743 1,869,376 1,168,633 81,816 1,250,449 Additions 2,501 1,173,260 1,175,761 – 618,927 618,927 Ending balance 1,171,134 1,874,003 3,045,137 1,168,633 700,743 1,869,376 AMORTIZATION Beginning balance Additions Ending balance NET CARRYING AMOUNT 937,819 856,365 937,819 78,303 1,016,122 – – – 78,303 1,016,122 155,012 1,874,003 2,029,015 81,454 937,819 230,814 – – – 700,743 856,365 81,454 937,819 931,557 * Work in progress balance represents the payments towards purchase of new insurance software; the management expects that the software will be launched during the third quarter of 2018. 5. INVESTMENT IN ASSOCIATES The Group holds a 33% equity ownership interest in companies registered in Lebanon as shown below, the investments in associated companies are accounted for using the equity method: Country of incorporation Ownership Star Rock SAL Lebanon Sina SAL Lebanon Silver Rock SAL Lebanon Golden Rock SAL Lebanon Movement on investment in associates is as follows: Opening balance Net share of profit from associated companies Dividends received 40 Lebanon Lebanon Lebanon Lebanon 2017 33% 33% 33% 33% 2017 USD 2016 33% 33% 33% 33% 2016 USD 11,628,580 11,798,851 199,274 – 84,694 (254,965) 11,827,854 11,628,580 International General Insurance Holdings Limited Annual Report & Accounts 2017 The following table includes summarised information of the Group’s investments in associates: 2017 Current assets Non-current assets Current liabilities NET ASSETS Star Rock SAL Lebanon USD Sina SAL Lebanon USD Silver Rock SAL Lebanon USD Golden Rock SAL Lebanon USD Total USD 141,254 31,382 181,360 688,654 1,042,650 4,869,502 3,872,799 5,703,348 36,838,278 51,283,927 2,450,051 2,490,518 1,917,315 9,626,711 16,484,595 2,560,705 1,413,663 3,967,393 27,900,221 35,841,982 IGI SHARE OF NET ASSETS 845,032 466,509 1,309,240 9,207,073 11,827,854 ASSOCIATES’ REVENUES AND RESULTS Revenues (Loss) profit IGI SHARE OF (LOSS) PROFIT 162,808 (39,853) (13,151) 52,727 148,125 1,271,123 1,634,783 39,627 13,077 41,352 562,733 13,646 185,702 603,859 199,274 2016 Current assets Star Rock SAL Lebanon USD Sina SAL Lebanon USD Silver Rock SAL Lebanon USD Golden Rock SAL Lebanon USD Total USD 185,897 27,733 233,361 1,169,919 1,616,910 Non-current assets 1,715,831 1,598,386 1,710,527 9,656,077 14,680,821 Revaluation Gain Current liabilities NET ASSETS 3,153,669 2,274,414 3,988,190 27,207,296 36,623,569 2,454,838 2,526,498 2,006,036 10,695,803 17,683,175 2,600,559 1,374,035 3,926,042 27,337,489 35,238,125 IGI SHARE OF NET ASSETS 858,184 453,432 1,295,594 9,021,370 11,628,580 ASSOCIATES’ REVENUES AND RESULTS Revenues (Loss) profit IGI SHARE OF (LOSS) PROFIT 87,900 30,316 10,004 47,428 (5,525) (1,823) 184,507 1,422,087 1,741,922 (2,927) (966) 234,786 77,479 256,650 84,694 The associates’ main business is investing in investment properties. The Investment properties of the associates are stated at fair value, which has been determined based on valuations performed by professional independent third party 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 year and the prior years. 41 International General Insurance Holdings Limited Annual Report & Accounts 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) At 31 December 2017 6. INVESTMENT PROPERTIES The following table includes summarized information of the Group’s investment properties: 2017 Opening balance Additions CLOSING BALANCE 2016 Opening balance Additions Fair value adjustments (note 20) ENDING BALANCE Commercial building USD Land* USD Total USD 20,189,934 9,920,245 30,110,179 2,524 261,587 264,111 20,192,458 10,181,832 30,374,290 Commercial building USD Land* USD Total USD 20,149,915 8,461,850 28,611,765 40,019 – 20,189,934 – 1,458,395 9,920,245 40,019 1,458,395 30,110,179 * Land amounting to USD 10,181,832 as at 31 December 2017 (2016: USD 9,920,245) is registered in the name of the Directors of the Group. The Group has obtained an irrevocable proxy over this investment property. As at 31 December 2017 and 2016, the fair values of the properties are based on valuations performed by accredited independent valuer who is a specialist in valuing these types of investment properties. A valuation model in accordance with that recommended by the International Valuation Standards Committee has been applied. 42 International General Insurance Holdings Limited Annual Report & Accounts 2017 7. INVESTMENTS HELD TO MATURITY Unquoted bonds* HELD FOR TRADING Quoted funds AVAILABLE-FOR-SALE 2017 USD 2016 USD 3,987,288 6,987,287 160,420 179,465 Quoted bonds and debt securities with fixed interest rate 185,806,397 173,177,246 Quoted equities Quoted funds and alternative investments Unquoted equities * Maturity of these bonds as at 31 December 2017 are as follows: Maturity 6 December 2016** 19 April 2018 32,017,989 42,311,449 7,971,825 5,936,647 6,542,440 5,936,647 231,732,858 227,967,782 235,880,566 235,134,534 Carrying amount 987,287 3,000,000 3,987,288 Effective interest rate 10% 6% ** These bonds are denominated in JOD (USD pegged currency) issued by ‘Specialized investment compound co., a local company based in Jordan with maturity date of 22nd February 2016; Said Company is currently under liquidation, due to which 85% of original bond holdings with nominal value of USD 1,237,288 has not been paid on the maturity date. Bonds are backed up by a collateral of 105% of its nominal value. However, the Group management has provided USD 250,000 during 2016 for potential impairment against the investment. No additional provision for impairment was recorded in the consolidated statement of profit or loss during the year 2017 as the Company is negotiating a settlement agreement to settle the outstanding bond balance. 43 International General Insurance Holdings Limited Annual Report & Accounts 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) At 31 December 2017 8. DEFERRED POLICY ACQUISITION COSTS Opening balance Acquisition costs Charged to consolidated income statement 9. INSURANCE RECEIVABLES Receivables from insurance companies and intermediaries Less: Provision for doubtful debts The movement in the provision of doubtful debts is as follows: Opening balance Provision for the year 2017 USD 28,286,248 57,570,774 2016 USD 29,272,180 49,353,636 (52,941,057) (50,339,568) 32,915,965 28,286,248 2017 USD 116,154,724 (2,864,350) 2016 USD 90,948,398 (2,864,350) 113,290,374 88,084,048 2017 USD 2016 USD (2,864,350) 2,864,350 – – (2,864,350) 2,864,350 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 USD Up to 90 days USD 91 to 180 days USD 181 to 270 days USD 271 to 360 days USD Over 360 days USD Total USD 31 December 2017 89,809,095 16,133,317 5,995,891 1,137,328 – 214,743 113,290,374 31 December 2016 74,426,953 8,210,369 2,758,224 1,036,459 1,203,181 448,862 88,084,048 It is not the practice of the Group to hold collaterals as security, therefore the receivable are unsecured. 44 International General Insurance Holdings Limited Annual Report & Accounts 2017 10. OTHER ASSETS Accrued interest income Advances for purchase of investments Prepaid expenses Refundable deposits Employees receivables Funds held in trust account with reinsurance company 2017 USD 1,784,012 – 1,078,932 107,099 652,723 826,217 2016 USD 1,610,151 1,976,935 921,644 293,921 14,776 437,212 Proceeds receivable from a sale of investment – 2,980,568 Income tax receivables Trade receivable* Others 161,650 436,126 262,970 399,952 114,286 167,593 5,309,729 8,917,038 *This amount represents the balances due from the Specialty Malls customers against rental income. There are no impaired trade receivables and management believes that the trade receivables will be recovered in full. The aging of the trade receivables is less than 180 days. The following table provides an aging analysis of trade receivables arising from Specialty Malls customers past due but not impaired: Past due but not impaired Neither past due nor impaired USD – – Up to 90 days USD 91 to 180 days USD Total USD – 436,126 436,126 114,286 – 114,286 31 December 2017 31 December 2016 45 International General Insurance Holdings Limited Annual Report & Accounts 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) At 31 December 2017 11. UNEARNED PREMIUMS 2017 Reinsurers’ share USD Gross USD Net USD Gross USD 2016 Reinsurers’ share USD Net USD Opening balance 133,670,895 (32,138,490) 101,532,405 143,563,534 (33,795,778) 109,767,756 Premiums written 275,340,636 (106,497,204) 168,843,432 231,427,789 (82,759,821) 148,667,968 Premiums earned (252,317,506) 97,508,731 (154,808,775) (241,320,428) 84,417,109 (156,903,319) 156,694,025 (41,126,963) 115,567,062 133,670,895 (32,138,490) 101,532,405 46 International General Insurance Holdings Limited Annual Report & Accounts 2017 12. OUTSTANDING CLAIMS MOVEMENT IN OUTSTANDING CLAIMS 2017 Reinsurers’ share USD Gross USD Net USD Gross USD 2016 Reinsurers’ share USD Net USD At the beginning of the year Reported claims 244,216,392 (122,735,801) 121,480,591 205,125,387 (93,820,351) 111,305,036 Claims incurred but not reported 90,954,902 (20,329,907) 70,624,995 95,542,211 (19,378,618) 76,163,593 335,171,294 (143,065,708) 192,105,586 300,667,598 (113,198,969) 187,468,629 Claims paid (204,098,071) 121,697,370 (82,400,701) (94,609,848) 27,790,582 (66,819,266) Provided during the year related to current accident year Provided during the year related to previous accident years 278,298,318 (161,385,081) 116,913,237 175,094,042 (76,323,343) 98,770,699 (26,144,100) 2,733,303 (23,410,797) (45,980,498) 18,666,022 (27,314,476) At the end of the year 383,227,441 (180,020,116) 203,207,325 335,171,294 (143,065,708) 192,105,586 At the end of the year Reported claims 303,254,937 (172,045,315) 131,209,622 244,216,392 (122,735,801) 121,480,591 Claims incurred but not reported 79,972,504 (7,974,801) 71,997,703 90,954,902 (20,329,907) 70,624,995 383,227,441 (180,020,116) 203,207,325 335,171,294 (143,065,708) 192,105,586 47 International General Insurance Holdings Limited Annual Report & Accounts 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) At 31 December 2017 CLAIMS DEVELOPMENT The following table show the estimate of cumulative incurred claims, including both reported claims and claim incurred but not reported for each successive accident year at each statement of financial position date, together with cumulative payments to date. At end of accident year 1,488,772 25,362,416 25,254,263 37,939,544 114,560,922 94,375,639 122,323,418 128,498,162 133,595,104 159,549,092 152,384,186 174,601,048 175,094,042 278,298,318 2004 USD 2005 USD 2006 USD 2007 USD 2008 USD 2009 USD 2010 USD 2011 USD 2012 USD 2013 USD 2014 USD 2015 USD 2016 USD 2017 USD Total USD One year later Two years later Three years later Four years later Five years later Six years later 8,005,487 44,520,499 35,110,485 54,041,148 125,149,178 75,295,485 108,522,816 106,566,918 119,424,721 155,958,329 114,972,073 160,100,166 173,369,296 7,714,673 47,504,859 40,894,923 53,379,611 119,412,667 67,118,529 105,943,110 100,764,212 108,556,804 148,160,641 101,352,163 149,533,104 7,573,398 47,354,940 39,641,082 53,971,648 121,676,478 68,496,704 100,572,066 110,286,014 110,046,062 142,309,348 92,846,420 7,961,530 46,820,976 37,331,379 53,468,989 119,839,220 68,217,208 99,513,334 114,464,267 103,996,492 133,916,518 7,862,214 46,391,258 37,665,596 53,393,860 113,090,591 67,908,658 101,599,381 110,266,231 104,540,662 7,763,419 47,224,929 36,800,576 50,534,739 112,125,348 67,807,370 100,198,544 111,774,284 Seven years later 7,778,981 46,211,206 35,600,935 49,718,456 110,400,053 67,613,678 100,302,961 Eight years later Nine years later Ten years later Eleven years later Twelve years later 7,842,871 46,232,192 35,318,464 49,552,802 110,588,511 68,114,668 7,729,592 46,224,784 34,796,272 49,374,891 111,162,234 7,731,054 45,737,657 34,609,372 49,361,720 7,659,919 45,608,779 34,553,537 7,691,568 45,609,384 – – – – – – – – – – – – – – Thirteen Years Later 7,689,074 – Current estimate of cumulative claims incurred 7,689,074 45,609,384 34,553,537 49,361,720 111,162,234 68,114,668 100,302,961 111,774,284 104,540,662 133,916,518 92,846,420 149,533,104 173,369,296 278,298,318 1,461,072,180 Cumulative payments to date 7,672,823 45,601,382 33,659,797 49,171,827 108,655,161 66,313,667 99,048,999 99,543,746 91,266,174 125,079,631 77,680,964 122,279,384 102,429,108 49,442,076 1,077,844,739 TOTAL LIABILITY INCLUDED IN THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION 383,227,441 48 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – International General Insurance Holdings Limited Annual Report & Accounts 2017 CLAIMS DEVELOPMENT payments to date. The following table show the estimate of cumulative incurred claims, including both reported claims and claim incurred but not reported for each successive accident year at each statement of financial position date, together with cumulative At end of accident year 1,488,772 25,362,416 25,254,263 37,939,544 114,560,922 94,375,639 122,323,418 128,498,162 133,595,104 159,549,092 152,384,186 174,601,048 175,094,042 278,298,318 2004 USD 2005 USD 2006 USD 2007 USD 2008 USD 2009 USD 2010 USD 2011 USD 2012 USD 2013 USD 2014 USD 2015 USD 2016 USD 2017 USD Total USD 8,005,487 44,520,499 35,110,485 54,041,148 125,149,178 75,295,485 108,522,816 106,566,918 119,424,721 155,958,329 114,972,073 160,100,166 173,369,296 7,714,673 47,504,859 40,894,923 53,379,611 119,412,667 67,118,529 105,943,110 100,764,212 108,556,804 148,160,641 101,352,163 149,533,104 7,573,398 47,354,940 39,641,082 53,971,648 121,676,478 68,496,704 100,572,066 110,286,014 110,046,062 142,309,348 92,846,420 7,961,530 46,820,976 37,331,379 53,468,989 119,839,220 68,217,208 99,513,334 114,464,267 103,996,492 133,916,518 7,862,214 46,391,258 37,665,596 53,393,860 113,090,591 67,908,658 101,599,381 110,266,231 104,540,662 7,763,419 47,224,929 36,800,576 50,534,739 112,125,348 67,807,370 100,198,544 111,774,284 Seven years later 7,778,981 46,211,206 35,600,935 49,718,456 110,400,053 67,613,678 100,302,961 7,842,871 46,232,192 35,318,464 49,552,802 110,588,511 68,114,668 7,729,592 46,224,784 34,796,272 49,374,891 111,162,234 7,731,054 45,737,657 34,609,372 49,361,720 7,659,919 45,608,779 34,553,537 7,691,568 45,609,384 – – – – – – – – – – – – – – – – – – – – Thirteen Years Later 7,689,074 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Current estimate of cumulative 7,689,074 45,609,384 34,553,537 49,361,720 111,162,234 68,114,668 100,302,961 111,774,284 104,540,662 133,916,518 92,846,420 149,533,104 173,369,296 278,298,318 1,461,072,180 One year later Two years later Three years later Four years later Five years later Six years later Eight years later Nine years later Ten years later Eleven years later Twelve years later claims incurred Cumulative payments to date 7,672,823 45,601,382 33,659,797 49,171,827 108,655,161 66,313,667 99,048,999 99,543,746 91,266,174 125,079,631 77,680,964 122,279,384 102,429,108 49,442,076 1,077,844,739 TOTAL LIABILITY INCLUDED IN THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION 383,227,441 49 International General Insurance Holdings Limited Annual Report & Accounts 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) At 31 December 2017 13. CASH AND BANK BALANCES Cash and bank balances Time deposits – short term 2017 USD 2016 USD 74,161,936 76,636,467 136,160,805 139,531,864 210,322,741 216,168,331 The time deposits, which are denominated in US Dollars and US Dollars pegged currencies, are made for varying periods between one month to one year depending on the immediate cash requirements of the Group. All deposits earned an average variable interest rate of 2.46% (2016: 2.08%). The cash and cash equivalents at 31 December 2017 in the consolidated statement of cash flows represent the balance of cash and short-term deposits netted by the balance of term deposits from three months to one year as of 31 December 2017. Cash and short-term deposits 2017 USD 2016 USD 210,322,741 216,168,331 Less: short-term deposits averages from three months to one year (93,717,028) (110,055,964) Cash and cash equivalents 116,605,713 106,112,367 14. ISSUED SHARE CAPITAL Shares of USD 1 each 15. TREASURY SHARES Authorised, issued and fully paid 2017 USD 2016 USD 143,375,678 143,375,678 The General Shareholders meeting approved in its extraordinary meeting held on 22 April 2015 to sell 7,900,000 of treasury shares in accordance with the DIFC laws and regulations at price of USD 1.87 per share to the existing shareholders. The foregoing sale transaction amounting to USD 14,773,000 has eliminated treasury shares recorded at an amount of USD 12,000,000 and resulted in an additional paid in capital of USD 2,773,000 within the group equity. 16. DIVIDENDS PAID The Board of Directors resolved to pay the following dividends: • On 9 March 2017: USD 5,735,027 (2016, on 17 March 2016: USD 7,168,783) • On 16 August 2017: USD 5,735,027 (2016, on 25 August 2016: USD 7,168,784) 50 International General Insurance Holdings Limited Annual Report & Accounts 2017 17. OTHER LIABILITIES Accounts payable Accrued expenses 18. INSURANCE PAYABLES Payables due to insurance companies and intermediaries Reinsurers – amounts due in respect of ceded premium 2017 USD 2,676,641 4,417,273 7,093,914 2017 USD 707,704 18,309,403 19,017,107 2016 USD 1,128,945 3,955,104 5,084,049 2016 USD 2,372,596 22,660,246 25,032,842 19. UNEARNED COMMISSIONS The movement in unearned commissions in the consolidated statement of financial position is as follows: As at 1 January Commissions received Commissions earned As at 31 December 2017 USD 2016 USD 8,292,099 8,841,923 18,771,267 15,034,056 (16,709,347) (15,583,880) 10,354,019 8,292,099 51 International General Insurance Holdings Limited Annual Report & Accounts 2017 20. NET INVESTMENT INCOME Interest income Dividends Net gain on sale of available-for-sale investments Fair value gain on Investment property (note 6) Fair value changes of held for trading investments Impairment Charge on held to maturity investments (note 7) Impairment reversal of available for sale investments (note 7) 2017 USD 8,632,460 1,490,607 3,133,556 – 95,582 – (71,863) 2016 USD 7,991,878 1,624,559 2,692,435 1,458,395 (245,991) (250,000) – Investments custodian fees and other investments expenses (1,741,631) (1,505,941) Income from real estate 21. GENERAL AND ADMINISTRATIVE EXPENSES Human resources expenses Business promotion, travel and entertainment Statutory, advisory and rating Information technology and software Office operation Depreciation and amortization Bank charges Board of directors expenses 1,007,983 995,004 12,546,694 12,760,339 2017 USD 2016 USD 21,695,853 21,183,051 2,123,002 1,816,318 1,542,740 1,491,240 503,599 129,750 551,164 2,696,545 2,070,915 2,082,246 1,462,654 582,816 155,008 722,200 29,853,666 31,007,651 52 International General Insurance Holdings Limited Annual Report & Accounts 2017 22. OTHER (LOSS) INCOME – NET Chartered flights net revenue Aircraft operational cost Aircraft depreciation expense Net loss of aircraft operation Others 2017 USD 837,712 (1,962,080) (903,232) (2,027,600) 18,828 (2,008,772) 2016 USD – – – – 14,292 14,292 23. COMMITMENTS AND CONTINGENCIES As of the date of the financial statements, the Group is contingently liable for the following: • Letters of Credit amounting to USD 9,039,158 to the order of reinsurance companies for collateralizing insurance contract liabilities in accordance with the reinsurance arrangements (31 December 2016: USD 5,213,988). • Letter of Guarantee amounting to USD 326,315 to the order of Friends Provident Life Assurance limited for collateralizing rent payment obligation in one of the Group entity’s office premises (31 December 2016: USD 297,914). • One of the Group’s entities has committed to contribute an amount of USD 1,250,000 to the University of California, San Francisco Foundation to support cancer research projects in five instalments over the next five years. The entity has paid USD 750,000 during the years 2016 and 2017 and the entity is still committed to pay the remaining instalments amounted to USD 500,000 during the years 2018, and 2019. LITIGATIONS During the year 2016, one of the Group’s entities filed a lawsuit with Customs Court of First Instance to object to a fine imposed on the Company by the Jordanian Customs Department amounting to USD 577,238 relating to equipment imported during the construction phase of the commercial building owned by the Company. The customs court ordered on 23 November 2017 to irrevocably dismiss the case with no liabilities of the group. 53 International General Insurance Holdings Limited Annual Report & Accounts 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) At 31 December 2017 24. 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. Compensation of key management personnel of the Group, consisting of salaries and benefits was USD 8,379,883 (2016: USD 8,588,074). Out of the total amount of key management personnel compensation, an amount of USD 318,076 (2016: USD 518,779) represents long-term benefits. These long-term benefits represents a phantom share option plan linked to the value of an ordinary share of the Group as approved by the Board of directors during 2011. The scheme is applicable to senior executives responsible for the management, growth and protection of business of the Group. The amount of bonus is determined by reference to the increase in the book value of shares covered by the option. No shares are actually issued or transferred to the option holder on the exercise of the option. The options vest equally over a span of five years starting on the first anniversary of continued employment following the date on which it is granted. The bonus due amounts to the excess of book value of shares on vesting date over grant date as determined in the latest audited financial statements as of 31 of December of the year prior to vesting and grant date respectively plus an additional 20% on the value of the excess. Moreover, the Group rented a boat for business promotion from a company owned by major shareholder, the total expense charged to the general and administrative expenses was USD 211,739 (2016: USD 476,836). In addition to this the Group has paid an aircraft management fees amounted to 168,221 as to Arab wings Co. which is owned by major shareholder. 25. DEFERRED TAX ASSETS Following is the movement on the deferred tax assets: Opening balance Amortization of deferred tax assets Deferred tax assets for the year ENDING BALANCE 2017 USD 1,032,988 (60,907) 19,368 991,449 The income tax expense appearing in the consolidated statement of profit or loss represent the following: 2017 USD 19,368 – – 19,368 Income tax benefit expense for IGI UK Income tax expense for NorthStar Income tax expense for IGI Underwriting TAX BENEFIT FOR THE YEAR 54 2016 USD 32,660 – 1,000,328 1,032,988 2016 USD 1,000,328 (63,740) – 936,588 International General Insurance Holdings Limited Annual Report & Accounts 2017 26. RISK MANAGEMENT The risks faced by the Group and the way these risks are mitigated by management are summarized below. INSURANCE RISK Insurance risk includes the risks of inappropriate underwriting, ineffective management of underwriting, inadequate controls over exposure management in relation to catastrophic events and insufficient reserves for losses including claims incurred but not reported. To manage this risk, the Group’s underwriting function is conducted in accordance with a number of technical analytical protocols which include defined underwriting authorities, guidelines by class of business, rate monitoring and underwriting peer reviews. The risk is further protected by reinsurance programs which respond to various arrays of loss probabilities. The Group has in place effective exposure management systems. Aggregate exposure is modelled and tested against different stress scenarios to ensure adherence to Group’s overall risk appetite and alignment with reinsurance programs and underwriting strategies. Loss reserve estimates are inherently uncertain. Reserves for unpaid losses are the largest single component of the liabilities of the Group. Actual losses that differ from the provisions, or revisions in the estimates, can have a material impact on future earnings and the statement of financial position. The Group has an in house experienced actuarial function reviewing and monitoring the reserving policy and its implementation at quarterly intervals. They work closely with the underwriting and claims team to ensure an understanding of the Group’s exposure and loss experience. In addition, the Group receives external independent analysis of its reserve requirements on a quarterly basis. In order to minimize 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 affected under treaty, facultative and excess-of-loss reinsurance contracts. 55 International General Insurance Holdings Limited Annual Report & Accounts 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) At 31 December 2017 GEOGRAPHICAL CONCENTRATION OF RISKS The Group’s insurance risk based on geographical concentration of risk is illustrated in the table below: Gross written premiums USD Concentration Percentage % 9,753,768 34,125,799 45,667,413 74,876,824 41,012,782 1,140,625 33,666,249 35,097,176 275,340,636 4 12 17 27 15 0.4 12 13 Gross written premiums USD Concentration Percentage % 11,663,028 43,384,541 35,387,824 43,012,038 39,446,587 1,769,742 21,769,628 34,994,401 231,427,789 5 19 15 19 17 1 9 15 2017 Africa Asia Central America Europe MENA North America South America Worldwide 2016 Africa Asia Central America Europe MENA North America South America Worldwide 56 International General Insurance Holdings Limited Annual Report & Accounts 2017 LINE OF BUSINESS CONCENTRATION OF RISK The Group’s insurance risk based on line of business concentration is illustrated in the table below: 2017 Energy Property Engineering Marine Reinsurance Financial Casualty Aviation Ports & Terminals Political Violence Forestry 2016 Energy Property Engineering Marine Reinsurance Financial Casualty Aviation Ports & Terminals Political Violence Forestry Gross written premiums USD Concentration Percentage % 87,937,007 51,272,773 10,375,952 2,014,461 17,890,905 14,271,496 43,119,887 18,998,073 17,263,245 9,730,839 2,465,998 275,340,636 32 19 4 1 6 5 16 7 6 4 1 Gross written premiums USD Concentration Percentage % 77,742,981 39,419,057 14,992,250 2,636,281 12,638,374 11,352,020 20,746,679 17,088,108 17,519,232 16,083,045 1,209,762 231,427,789 34 17 6 1 5 5 9 7 8 7 1 57 International General Insurance Holdings Limited Annual Report & Accounts 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) At 31 December 2017 SENSITIVITIES The analysis below shows the estimated impact on gross and net insurance contracts claims liabilities and on profit before tax, of an ultimate development on net claims liabilities of 5% greater than from that reported in the statement of financial position. The impact on gross claims liabilities assumes that recovered rates remain constant Impact on gross insurance contract claims liabilities USD Impact on net insurance contract claims liabilities USD 19,161,372 16,758,565 10,160,366 9,605,279 % + 5 + 5 Impact on profit USD 10,160,366 9,605,279 2017 2016 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, investment in associates, investment properties and reinsurance contracts, 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 summarized 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. 58 International General Insurance Holdings Limited Annual Report & Accounts 2017 Details of maturities of the major classes of financial assets are as follows: 2017 Investments held for trading Available-for-sale investments Held to maturity investments Cash and bank balances 2016 Investments held for trading Available-for-sale investments Held to maturity investments Cash and bank balances Less than 1 year USD 1 to 5 years USD More than 5 years USD Non-interest bearing items USD Effective Interest Rate on interest bearing assets (%) Total USD – – – 160,420 160,420 40,433,675 135,457,031 9,915,693 45,926,459 231,732,858 3,987,288 210,322,741 – – – – – – 3,987,288 210,322,741 254,743,704 135,457,031 9,915,693 46,086,879 446,203,307 – – – 179,465 24,824,294 130,087,251 16,920,910 56,135,326 3,987,288 3,000,000 216,168,331 – – – – – 179,465 227,967,781 6,987,288 216,168,331 244,979,913 133,087,251 16,920,910 56,314,791 451,302,865 – 2.78 3.87 1.59 – 2.76 3.34 1.39 The following table demonstrates the sensitivity of profit or loss statement 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 December. 2017 2016 Increase/ decrease in basis points Effect on profit for the year USD + 25 - 50 + 25 - 50 1,629,772 814,886 799,241 (1,598,482) 59 International General Insurance Holdings Limited Annual Report & Accounts 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) At 31 December 2017 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 predominantly 55% of the business 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. The Group is exposed to credit risk primarily from unpaid insurance receivables and fixed income instruments. The Group has in place credit appraisal policies and procedures for inward business and receivables from insurance transactions are monitored on an ongoing basis to restrict Group’s exposure to doubtful debts. The Group has in place security standards applicable to all reinsurance purchases and monitors the financial status of all reinsurance debtors at regular intervals. The Group’s portfolio of fixed income investment is managed by the investments committee in accordance with the investment policy established by the board of directors which has various credit standards for investment in fixed income securities. Reinsurance and fixed income investments are monitored for the occurrence of a downgrade or other changes that might cause them to fall below the Group’s security standards. If this occurs, management takes appropriate action to mitigate any loss to the Group. 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. 60 International General Insurance Holdings Limited Annual Report & Accounts 2017 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: Neither past due nor impaired Investment grade USD Non investment grade (satisfactory) USD Non investment grade (unsatisfactory) USD Past due but not impaired USD Total USD 2017 Available for sale investments – bonds and debt securities Held to maturity investments – bonds and debt securities Insurance receivables Reinsurance share of unearned premiums Reinsurance share of outstanding claims Deferred XOL premium 183,175,820 2,630,577 – – – 3,000,000 89,809,095 41,126,963 160,665,999 19,354,117 – 11,612,654 Cash and bank balances 163,416,461 46,906,280 507,258,280 214,439,686 2016 Available for sale investments – bonds and debt securities Held to maturity investments – bonds and debt securities Insurance receivables Reinsurance share of unearned premiums Reinsurance share of outstanding claims Deferred XOL premium 169,800,542 3,376,703 3,000,000 3,000,000 – – 74,426,953 32,138,490 137,758,910 5,306,798 – 8,878,968 Cash and bank balances 166,293,369 49,874,962 476,852,821 177,002,874 – – – – – – – – – – – – – – – – – 185,806,397 987,288 3,987,288 23,481,279 113,290,374 – – – – 41,126,963 180,020,116 11,612,654 210,322,741 24,468,567 746,166,533 – 173,177,245 987,288 6,987,288 13,657,095 88,084,048 – – – – 32,138,490 143,065,708 8,878,968 216,168,331 14,644,383 668,500,078 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 profit or loss for this or when collectability of the amount is otherwise assessed as being doubtful. 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. 61 International General Insurance Holdings Limited Annual Report & Accounts 2017 The Schedule below shows the distribution of bonds and debt securities with fixed interest rate according to the international agencies classification: Bonds and debt securities USD Unquoted bonds USD 31,581,864 23,326,257 20,561,108 4,002,610 5,267,194 17,680,818 951,775 7,553,019 23,361,272 5,602,497 2,621,590 750,180 3,320,507 209,000 10,515,726 6,653,025 20,378,152 – – – – – – – – – – – – – – – – – Total USD 31,581,864 23,326,257 20,561,108 4,002,610 5,267,194 17,680,818 951,775 7,553,019 23,361,272 5,602,497 2,621,590 750,180 3,320,507 209,000 10,515,726 6,653,025 20,378,152 1,469,803 3,987,288 5,457,091 185,806,397 3,987,288 189,793,685 Rating grade 2017 A A- A+ A1 A2 A3 A5 AA AA- AA+ Aa2 Aa3 AAA BB+ BBB BBB- BBB+ Not rated TOTAL 62 International General Insurance Holdings Limited Annual Report & Accounts 2017 Rating grade 2016 Bonds and debt securities USD Unquoted bonds USD A A- A+ A1 A2 A3 A5 AA AA- AA+ Aa1 Aa2 Aa3 AAA Baa1 BB+ BB- BBB BBB- BBB+ Not rated TOTAL 16,170,130 19,864,924 5,512,725 13,480,048 13,388,475 9,992,165 1,344,789 12,228,408 23,261,919 4,864,373 759,641 8,756,370 9,662,695 6,809,439 1,760,006 1,000,668 208,000 5,930,678 1,126,203 19,232,343 823,246 176,177,245 – – – – – – – – – – – – – – – – – – 3,987,288 3,987,288 Total USD 16,170,130 19,864,924 5,512,725 13,480,048 13,388,475 9,992,165 1,344,789 12,228,408 23,261,919 4,864,373 759,641 8,756,370 9,662,695 6,809,439 1,760,006 1,000,668 208,000 5,930,678 1,126,203 19,232,343 4,810,534 180,164,533 63 International General Insurance Holdings Limited Annual Report & Accounts 2017 Total USD 3,360,039 209,000 5,573,350 19,649,099 951,775 3,987,288 3,843,760 1,003,850 14,947 29,528,702 6,579,031 600,750 2,062,011 17,471,710 15,858,744 79,099,629 189,793,685 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) At 31 December 2017 The schedule below shows the geographical distribution of bonds and debt securities with fixed interest rate: Country 2017 Australia Bahrain Canada Europe Global Jordan KSA Kuwait Oman Pacific basin Qatar Russia South America UAE UK USA TOTAL 64 International General Insurance Holdings Limited Annual Report & Accounts 2017 Country 2016 Australia Bahrain Canada Europe Global Jordan KSA Oman Pacific basin Qatar Russia South America UAE UK USA TOTAL Total USD 3,951,220 208,000 4,550,763 19,930,334 922,639 3,987,288 1,763,620 26,003 34,307,831 5,926,255 1,606,668 1,010,983 19,951,122 10,562,474 71,459,333 180,164,533 65 International General Insurance Holdings Limited Annual Report & Accounts 2017 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 Group’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. 2017 New York Stock Exchange Amman Stock Exchange Saudi Stock Exchange Qatar Stock Exchange Kuwait stock exchange Abu Dhabi security exchange NASDAQ Dubai Other quoted Change in equity price USD Effect on profit for the year USD Effect on equity USD +5% +5% +5% +5% +5% +5% +5% +5% – – – – 8,021 – – – 233,869 45,559 902,416 30,688 96,348 234,419 22,264 485,735 66 International General Insurance Holdings Limited Annual Report & Accounts 2017 2016 New York Stock Exchange Amman Stock Exchange Saudi Stock Exchange Qatar Stock Exchange Kuwait Stock Exchange Abu Dhabi security exchange NASDAQ Dubai Other quoted Change in equity price USD Effect on profit for the year USD Effect on equity USD +5% +5% +5% +5% +5% +5% +5% +5% – – – – 8,973 – – – 291,285 50,197 627,363 332,106 79,361 390,197 73,998 598,187 The Group also has unquoted investment carried at fair value determined based on valuation techniques as per level 2 and 3 of fair value hierarchy. The Group limits market risk by maintaining a diversified portfolio and by monitoring of developments in equity markets. 67 International General Insurance Holdings Limited Annual Report & Accounts 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) At 31 December 2017 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. The Group continually monitors its cash and investments to ensure that the Group meets its liquidity requirements. The Group’s asset allocation is designed to enable insurance liabilities to be met with current assets. All liabilities are non-interest bearing liabilities. The table below summarizes the maturity profile of the company’s financial liabilities at 31 December based on contractual undiscounted payments: Less than one year USD More than one year USD Total USD 268,259,209 114,968,232 383,227,441 109,685,817 47,008,208 156,694,025 7,093,914 19,017,107 – – 7,093,914 19,017,107 7,247,814 3,106,205 10,354,019 411,303,861 165,082,645 576,386,506 234,619,906 100,551,388 335,171,294 93,569,627 40,101,268 133,670,895 4,454,674 25,032,842 5,804,469 629,375 5,084,049 – 25,032,842 2,487,630 8,292,099 363,481,518 143,769,661 507,251,179 2017 Gross outstanding claims Gross unearned premiums Other liabilities Insurance payable Unearned commissions TOTAL LIABILITIES 2016 Gross outstanding claims Gross unearned premiums Other liabilities Insurance payable Unearned commissions TOTAL LIABILITIES 68 International General Insurance Holdings Limited Annual Report & Accounts 2017 MATURITY ANALYSIS OF ASSETS AND LIABILITIES The table below shows analysis of assets and liabilities analyzed according to when they are expected to be recovered or settled: Less than one year USD More than one year USD No term USD Total USD 31 December 2017 ASSETS Premises and equipment Intangible assets Investment in associated companies Investment property Investments Deferred policy acquisition costs Insurance receivables Deferred tax assets Other assets – – – – 44,420,961 23,041,175 113,075,631 991,449 5,309,729 13,090,537 2,029,015 – – 145,372,724 9,874,790 214,743 – – 12,338,089 54,006,035 – – – – 11,827,854 30,374,290 46,086,881 – – – – – – – – 13,090,537 2,029,015 11,827,854 30,374,290 235,880,566 32,915,965 113,290,374 991,449 5,309,729 41,126,963 180,020,116 11,612,654 210,322,741 Reinsurance share of unearned premiums 28,788,874 Reinsurance share of outstanding claims 126,014,081 Deferred XOL premium Cash and short term deposits 11,612,654 210,322,741 TOTAL ASSETS 563,577,295 236,925,933 88,289,025 888,792,253 EQUITY AND LIABILITIES EQUITY Share capital Contributed Capital Foreign currency translation reserve Cumulative changes in fair value Retained earnings TOTAL EQUITY LIABILITIES Gross outstanding claims Gross unearned premiums Other liabilities Insurance payable Unearned commissions TOTAL LIABILITIES – – – – – – – – – – – – 143,375,678 143,375,678 2,773,000 (269,206) 2,773,000 (269,206) 15,708,956 15,708,956 150,817,319 150,817,319 312,405,747 312,405,747 268,259,209 114,968,232 109,685,817 47,008,208 7,093,914 19,017,107 7,247,814 – – 3,106,205 411,303,861 165,082,645 – – – – – – 383,227,441 156,694,025 7,093,914 19,017,107 10,354,019 576,386,506 TOTAL EQUITY AND LIABILITIES 411,303,861 165,082,645 312,405,747 888,792,253 69 International General Insurance Holdings Limited Annual Report & Accounts 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) At 31 December 2017 Less than one year USD More than one year USD No term USD Total USD 31 December 2016 ASSETS Premises and equipment Intangible assets Investment in associated companies Investment property Investments Deferred policy acquisition costs Insurance receivables Deferred tax assets Other assets Reinsurance share of unearned premiums – – – – 28,811,582 19,800,374 87,635,185 – 8,917,037 22,496,942 Reinsurance share of outstanding claims 100,145,996 Deferred XOL premium Cash and short term deposits 8,878,968 216,168,331 14,079,841 931,557 – – 150,008,161 8,485,874 448,863 1,032,988 – 9,641,548 42,919,712 – – – – 11,628,581 30,110,179 56,314,791 – – – – – – – – 14,079,841 931,557 11,628,581 30,110,179 235,134,534 28,286,248 88,084,048 1,032,988 8,917,037 32,138,490 143,065,708 8,878,968 216,168,331 TOTAL ASSETS 492,854,415 227,548,544 98,053,551 818,456,510 EQUITY AND LIABILITIES EQUITY Share capital Contributed Capital Foreign currency translation reserve Cumulative changes in fair value Retained earnings TOTAL EQUITY LIABILITIES Gross outstanding claims Gross unearned premiums Other liabilities Insurance payable Unearned commissions TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES 70 – – – – – – – – – – – – 143,375,678 143,375,678 2,773,000 (362,735) 2,773,000 (362,735) 10,994,423 10,994,423 154,424,965 154,424,965 311,205,331 311,205,331 234,619,906 100,551,388 93,569,626 4,454,674 25,032,842 5,804,469 363,481,517 363,481,517 40,101,269 629,375 – 2,487,630 143,769,662 143,769,662 – – – – – – 311,205,331 335,171,294 133,670,895 5,084,049 25,032,842 8,292,099 507,251,179 818,456,510 International General Insurance Holdings Limited Annual Report & Accounts 2017 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 maximize 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 directly or indirectly; and Level 3: Techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. 31 December 2017 Held for trading Available-for-sale Level 1 USD 160,420 225,796,210 Level 2 USD – – Level 3 USD – Total USD 160,420 5,936,648 231,732,858 Investment properties – 30,374,290 – 30,374,290 31 December 2016 Held for trading Available-for-sale 225,956,630 30,374,290 5,936,648 262,267,568 Level 1 USD 179,465 Level 2 USD – Level 3 USD – Total USD 179,465 222,031,135 4,900,485 1,036,161 227,967,781 Investment properties – 30,110,179 – 30,110,179 222,210,600 35,010,664 1,036,161 258,257,425 27. SUBSEQUENT EVENTS There have been no material events between 31 December 2017 and the date of this report which are required to be disclosed. 28. COMPARATIVE FIGURES Some of 2016 balances were reclassified to correspond with those of 2017 presentation. The reclassification has no effect on the profit for the year and equity. 71 International General Insurance Holdings Limited Annual Report & Accounts 2017 International General Insurance Holdings Limited Annual Report & Accounts 2017