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Al Khaleej Insurance Company Q.S.C.

FINANCIAL STATEMENTS

31 DECEMBER 2004

AUDITORS' REPORT TO THE SHAREHOLDERS OF AL KHALEEJ INSURANCE COMPANY Q.S.C. We have audited the accompanying balance sheet of Al Khaleej Insurance Company Q.S.C. as of 31 December 2004, and the related statements of income, cash flows and changes in equity for the year then ended. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As more fully explained in Note 11 to the financial statements, the Company has established an Islamic branch (independently managed) by providing an interest free loan of QR 5 million. The Company has not consolidated the net assets of this branch as required by International Financial Reporting Standards. In our opinion, except for the effect on the financial statements of the matter referred to in the preceding paragraph, the financial statements present fairly, in all material respects, the financial position of the company as of 31 December 2004, and the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Furthermore, in our opinion proper financial records have been kept by the company and the contents of the directors' report which relate to the financial statements are in agreement with the company's financial records, and the financial statements comply with the Qatar Commercial Companies' Law No. 5 of 2002 and the company's Articles of Association. We have obtained all the information and explanations we required for the purpose of our audit and are not aware of any violations of the above mentioned law or the Articles of Association having occurred during the year which might have had a material effect on the business of the company or on its financial position.

A. Mekhael, F.C.C.A. of Ernst & Young Auditor's Registration No. 59 Date: Doha

Al Khaleej Insurance Company Q.S.C.

INCOME STATEMENT

Year Ended 31 December 2004

Note 2004 QR 2003 QR

Gross premiums written and accepted Reinsurance premiums ceded

103,133,561 (71,962,981) 31,170,580 (2,423,353) 28,747,227 6,974,384 35,721,611

56,242,100 (32,048,317) 24,193,783 (814,039) 23,379,744 6,234,017 29,613,761 15,150,831 788,280 15,939,111 13,674,650 334,291 2,307,278 5,578,700 1,018,000 181,671 9,419,940 8,932,573 182,000 250,000 1,214,074 10,578,647 12,515,943 3.08

Movement in unearned premiums Premiums earned Commissions received on ceded reinsurance

Claims incurred Commissions paid

18,068,672 1,121,541 19,190,213

NET INSURANCE REVENUE

16,531,398 344,041 16,402,237 5,512,630 746,333 347,276 23,352,517 9,307,755 490,206 357,563 1,000,677 11,156,201

Interest income Gain on sale of investment securities Dividend income Rental income Other income Total investment and other income General and administration expenses Provision for impairment of investments Provision for doubtful debts Depreciation of property and equipment

3 3

NET PROFIT FOR THE YEAR BASIC EARNINGS PER SHARE

4 5

28,727,714 7.07

The attached notes 1 to 24 form part of these financial statements. 2

Al Khaleej Insurance Company Q.S.C.

BALANCE SHEET

At 31 December 2004

Notes

ASSETS

2004 QR

2003 QR

Cash and investments : Demand deposits and cash Time deposits Investment securities

6 6 7

21,508,028 15,037,546 364,325,245 400,870,819

3,640,806 14,765,273 202,446,379 220,852,458 15,454,989 3,905,919 12,154,471 1,574,965 5,000,000 10,406,934 48,497,278 269,349,736

Accounts receivable Reinsurance balances receivable Reinsurers' share of outstanding claims Other receivables and prepayments Due from branch Property and equipment

8 9 16 10 11 12

16,867,397 6,853,828 10,196,460 1,874,108 5,000,000 9,576,634 50,368,427

TOTAL ASSETS EQUITY AND LIABILITIES Capital and reserves

451,239,246

Share capital Statutory reserve Proposed issue of bonus shares Proposed dividend General reserve Net unrealised gains on investment securities Retained earnings

Total equity LIABILITIES

13 14 15 15

40,656,000 15,084,690 10,164,000 6,098,400 24,000,000 295,959,914 8,363,725 400,326,729

29,040,000 12,211,918 11,616,000 24,000,000 149,396,961 1,071,183 227,336,062

Insurance funds: Reserve for unexpired risks Gross outstanding claims Technical reserve

16

10,822,458 18,292,587 3,150,000 32,265,045

8,399,105 18,780,130 3,150,000 30,329,235 8,879,911 1,847,793 956,735 11,684,439 42,013,674 269,349,736

Accounts payable and other liabilities Reinsurance balance payable Provision for employees' end of service benefits

17 18

12,142,934 5,266,484 1,238,054 18,647,472

Total liabilities TOTAL EQUITY AND LIABILITIES

50,912,517 451,239,246

............................................. ........................................... Abdulla Bin Mohammed Jaber Al Thani Abdulla Bin Ahmed Al Thani .form part of these financial statements 24to 1The attached notes 3

.................................... Ayed Hikmat Abdul Hafez

Al Khaleej Insurance Company Q.S.C.

Chairman Deputy Chairman Acting General Manager

.form part of these financial statements 24to 1The attached notes 3

Al Khaleej Insurance Company Q.S.C.

STATEMENT OF CASH FLOWS

Year Ended 31 December 2004

Note

OPERATING ACTIVITIES

2004 QR

2003 QR

Net profit for the year Adjustments for: Movement in unearned premiums Depreciation Provision for doubtful debts Provision for impairment of investment securities Interest income Gain on sale of investment securities Dividend income Rental income Profit on sale of property and equipment Provision for employees' end of service benefits Operating profit before changes in operating assets and liabilities Accounts receivable Reinsurance balances receivable Reinsurers' share of outstanding claims Other receivables and prepayments Gross outstanding claims Technical reserves Accounts payable and other liabilities Reinsurance balance payable Employees' end of service benefits paid Net cash from operating activities INVESTING ACTIVITIES Net movement in investment securities Purchase of property and equipment Proceeds from sale of property and equipment Loan to Islamic branch Time deposits with maturities in excess of 3 months Interest income Investment income Rental income Net cash from investing activities FINANCING ACTIVITIES Dividends paid Net cash used in financing activities

INCREASE IN CASH AND CASH EQUIVALENTS

28,727,714 2,423,353 1,000,677 357,563 490,206 (344,041) (16,402,237) (5,512,630) (746,333) (2,971) 281,319

12,515,943 814,039 1,214,074 250,000 182,000 (334,291) (2,307,278) (5,578,700) (1,018,000) (82,175) 89,454

3

10,272,620 (1,769,971) (2,947,909) 1,958,011 (299,143) (487,543) 963,023 3,418,691 11,107,779

5,745,066 (710,518) (1,170,441) (6,553,937) 415,565 6,261,186 27,423 2,770,901 (3,584,564) (352,612) 2,848,069

(15,806,119) (210,406) 43,000 (272,273) 344,041 21,914,867 746,333 6,759,443

(3,493,436) (1,832,195) 109,200 (5,000,000) 3,842,725 334,291 7,885,978 1,018,000 2,864,563

-

(3,960,000) (3,960,000)

17,867,222

1,752,632

Cash and cash equivalents at the beginning of the year

3,640,806

1,888,174

The attached notes 1 to 24 form part of these financial statements. 4

Al Khaleej Insurance Company Q.S.C.

CASH AND CASH EQUIVALENTS AT END OF THE YEAR 6 21,508,028 3,640,806

The attached notes 1 to 24 form part of these financial statements. 4

Al Khaleej Insurance Company Q.S.C.

STATEMENT OF CHANGES IN EQUITY

Year ended 31 December 2004

Proposed issue of bonus shares QR 2,640,000 (2,640,000) 11,616,000 11,616,000 (11,616,000) 10,164,000 10,164,000 Cumulative changes in fair values QR 61,777,390 (1,500,000) 89,119,571 149,396,961 (6,646,122) 153,209,075 295,959,914

Share capital QR Balance at 31 December 2002 Net profit for the year Dividends paid and held for payment Bonus share issue (Note 15) Proposed bonus shares (Note 15) Transfer to statutory reserve (Note 14) Board of directors remuneration for 2003 Net gains on sales of investment securities recognised in income statement Net movement in unrealised gains on investments securities available-for-sale Balance at 31 December 2003 26,400,000 2,640,000 29,040,000

Statutory reserve QR 10,960,324 1,251,594 12,211,918 2,872,772

General reserve QR 24,000,000 24,000,000 24,000,000

Proposed dividend QR 3,960,000 (3,960,000) 6,098,400 6,098,400

Retained earnings QR 2,522,834 12,515,943 (11,616,000) (1,251,594) (1,100,000) 1,071,183 28,727,714 (6,098,400) (10,164,000) (2,872,772) (2,300,000) 8,363,725

Total QR 132,260,548 12,515,943 (3,960,000) (1,100,000) (1,500,000) 89,119,571 227,336,062 28,727,714 (2,300,000) (6,646,122) 153,209,075 400,326,729

Net profit for the year Dividends proposed for 2004 (Note 15) Bonus share issue for 2003 (Note 15) 11,616,000 Proposed bonus shares for 2004 (Note 15) Transfer to statutory reserve (Note 14) Board of directors remuneration for 2004 Net gains on sales of investment securities recognised in income statement Net movement in unrealised gains on investments securities available-for-sale Balance at 31 December 2004 40,656,000

15,084,690

The attached notes 1 to 24 form part of these financial statements. 5

Al Khaleej Insurance Company Q.S.C.

NOTES TO THE FINANCIAL STATEMENTS

At 31 December 2004

1 ACTIVITIES

Al Khaleej Insurance Company Q.S.C. is a Qatari Shareholding Company registered and incorporated in the State of Qatar under Emiri Decree No. 53 issued on 21 December 1978 and is engaged in the business of insurance and reinsurance (except life insurance). During 2002, the company established a separate branch for Islamic deals to carry out insurance and reinsurance activities in accordance with Islamic Sharia principles on a non-usury basis in all areas of insurance. The company employed 66 employees as of 31 December 2004 (2003: 68 employees). The financial statements of Al Khaleej Insurance Company Q.S.C. for the year ended 31 December 2004 were authorised for issue on .......... ....

2

SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation The financial statements have been prepared in accordance with Standards issued by the International Accounting Standards Board and interpretations issued by the International Financial Reporting Interpretations Committee and the applicable requirements of Qatar Companies Commercial Law. The financial statements have been presented in Qatari Riyals. Accounting convention The financial statements have been prepared under the historical cost convention modified to include the measurement at fair value of available-for-sale investment securities. The accounting policies are consistent with those used in the previous year. Premiums earned Net premiums are taken into income for policies expiring within the financial year. Unearned premiums represent the portion of net premiums written relating to the unexpired period of coverage. Commissions earned and paid Commissions earned and paid are recognised at the time policies are written. Interest income Interest income is recognised on a time proportion basis taking into account the principal invested and the effective interest rate applicable. Investment and rental income Investment and rental income is recognised on a straight line basis based on the term of the contract. Dividend income is recognised when declared or received. Cash and cash equivalents Cash and cash equivalents consist of cash and bank balances with an original maturity less than 90 days. Time deposits that have a maturity of more than three months from the date of acquisition are excluded from cash and cash equivalents.

6

Al Khaleej Insurance Company Q.S.C.

NOTES TO THE FINANCIAL STATEMENTS

At 31 December 2004

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

Investment securities All investments are initially recognised at cost, being the fair value of the consideration given and including acquisition charges. Premiums and discounts are amortised using the effective interest rate method and taken to interest income. After initial recognition, investments which are classified as "available for sale" are measured at fair value, with unrealised gains or losses reported as a separate component of equity until the investment is derecognised or the investment is determined to be impaired. On derecognition or impairment the cumulative gain or loss previously reported in equity, along with any transition adjustment to retained earnings arising from the adoption of IAS 39, is included in the income statement for the period. Other long term investments which are intended to be held to maturity, such as bonds, are subsequently measured at amortised cost less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition, over the period to maturity. For investments carried at amortised cost, any gain or loss is recognised as income when the investment is derecognised or impaired, as well as through the amortisation process. Property and equipment Property and equipment is initially recorded at cost less accumulated depreciation and any impairment in value. Land is not depreciated. Depreciation is calculated on a straight line basis over the estimated useful lives of the assets as follows: Building Furniture & fixtures Computers Vehicles Other assets 20 years 5 years 5 years 4 years 5 years

The carrying values of property are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount. The recoverable amount of property is the greater of net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the assets. Impairment losses are recognised in the income statement. Impairment and uncollectibility of financial assets An assessment is made at each balance sheet date to determine whether there is objective evidence that a financial asset or group of financial assets may be impaired. If such evidence exists, the estimated recoverable amount of that asset is determined, based on the net present value of future anticipated cash flows discounted at original effective interest rates, recognised in the income statement. Gross outstanding claims Gross outstanding claims comprise the gross estimated cost of claims incurred and reported but not settled at the balance sheet date. Provisions for reported claims not paid as at the balance sheet date is made on the basis of individual case estimates. Any difference between the provisions at the balance sheet date and settlements and provisions in the following year is included in the net insurance account for that year.

7

Al Khaleej Insurance Company Q.S.C.

NOTES TO THE FINANCIAL STATEMENTS

At 31 December 2004

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

Reinsurance Claims receivable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured parties. Technical reserve Technical reserve is based on management's judgement and the company's prior experience for the cost of settling claims incurred but not reported at the balance sheet date. Any difference between the provisions at the balance sheet date and provisions in the following year is included in the net insurance account for that year. Provisions Provisions are recognised when the Company has a present obligation (legal or constructive) arising from a past event and the costs to settle the obligation are both probable and able to be reliably measured. Use of estimates The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amount of financial assets and liabilities and disclosure of contingent liabilities. These estimates and assumptions also affect the revenues and expenses and the resultant provisions as well as fair value changes reported in equity. In particular, considerable judgment by management is required in the estimation of the amount and timing of future cash flows when determining the level of provisions required. Such estimates are necessarily based on assumptions about several factors involving varying degrees of judgment and uncertainty and actual results may differ resulting in future changes in such provisions. Reserve for unexpired risk The reserve for unexpired risk represents the estimated portion of net premium income after deduction of reinsurance share to periods of insurance subsequent to the balance sheet date. The reserve is calculated at 35% of the net premium for all insurance classes except for marine cargo insurance which is calculated at 25%. Employees' end of service benefits The company provides end of service benefits to all its employees. The entitlement to these benefits is based upon the employees' final salary and length of service in accordance with the Qatar Labour Law. Foreign currencies Transactions in foreign currencies, are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All differences are taken to the income statement. Fair values For investments traded in organised markets, fair value is determined by reference to last quoted trade prices. The fair value of interest-bearing items is estimated based on discounted cash flows using interest rates for items with similar terms and risk characteristics. For unquoted equity investments, fair value is determined by reference to the market value of a similar investment or is based on the expected discounted cash flows.

8

Al Khaleej Insurance Company Q.S.C.

NOTES TO THE FINANCIAL STATEMENTS

At 31 December 2004

3 INVESTMENT INCOME 2004 QR Gain on sale of investment securities Dividend income 16,402,237 5,512,630 21,914,867 2003 QR 2,307,278 5,578,700 7,885,978

Included in gain on sale of investment securities for the year ended 31 December 2003 is profit made on the sale of investment securtities to the Islamic branch of Al Khaleej Insurance Company amounting to QR 2,104,180.

4

NET PROFIT FOR THE YEAR

The net profit for the year is stated after charging: 2004 QR Salaries and benefits 6,127,938 2003 QR 5,784,820

5

BASIC EARNINGS PER SHARE

Basic earnings per share is calculated by dividing the net profit for the year by the weighted average number of ordinary shares outstanding during the year. During the current year, the Company issued bonus shares issue. Accordingly, the previously reported earnings per share have been restated for the bonus share issue made during the year. 2004 QR 2003 QR (Restated) 12,515,943 4,065,600 3.08

Net profit for the year Weighted average number of shares outstanding during the year (i) Basic earnings per share Notes (i)

28,727,714 4,065,600 7.07

The weighted average number of shares has been calculated as follows: 2004 Nos. 2003 Nos. (Restated) 2,904,000 1,161,600 4,065,600

Qualifying shares at beginning of the year Effect of bonus shares issued Weighed average number of shares at end of the year (ii)

2,904,000 1,161,600 4,065,600

There were no potentially dilutive shares outstanding at any time during the year.

9

Al Khaleej Insurance Company Q.S.C.

NOTES TO THE FINANCIAL STATEMENTS

At 31 December 2004

6 CASH AND CASH EQUIVALENTS 2004 QR Demand deposits and cash (Maturities of less than or equal to three months) Time deposits (Maturities in excess of three months) 2003 QR

21,508,028 15,037,546 36,545,574

3,640,806 14,765,273 18,406,079

Cash and cash equivalents included in the statement of cash flows comprise of demand deposits and cash of less than 3 months maturity.

7

INVESTMENT SECURITIES

The carrying amounts of investment securities at 31 December were as follows: Available For sale QR Quoted investments: Equity local shares Equity foreign funds Bonds 2004 Total QR 2003 Total QR

349,885,636 1,482,508 2,667,811 354,035,955

349,885,636 1,482,508 2,667,811 354,035,955

183,023,598 987,876 8,051,225 192,062,699

Unquoted investments: Equity local shares Equity foreign shares Bonds

775,000 1,096,706 364,000 2,235,706

775,000 1,096,706 364,000 2,235,706 8,907,790 365,179,451 (854,206) 364,325,245

1,638,544 958,614 364,000 2,961,158 7,786,522 202,810,379 (364,000) 202,446,379

Managed Portfolios Total Less: Provision for impairment

8,907,790 365,179,451 (854,206) 364,325,245

During the year, the Company has sold a significant amount of financial assets classified as held-to-maturity with a book value of QR 5,958,225. In accordance with the requirements of International Financial Reporting Standards, the remaining held-to-maturity assets were reclassified as available-for-sale financial assets and remeasured at fair value. The difference of QR 574,811 between the carrying amount and fair value of the remaining investments was recognised directly in the cumulative changes in fair value under shareholder's equity. Included under available-for-sale investment are unquoted equity investments and managed portfolios with a value of QR 11,870,992 (2003 : QR 10,375,693) which are carried at cost due to the unpredictable nature of future cash flows and the lack of suitable other methods for arriving at a reliable fair value.

10

Al Khaleej Insurance Company Q.S.C.

NOTES TO THE FINANCIAL STATEMENTS

At 31 December 2004

8 ACCOUNTS RECEIVABLE 2004 QR Due from companies Due from individuals Due from government entities Other receivables 14,661,938 386,369 2,115,910 1,044,641 18,208,858 (1,341,461) 16,867,397 2003 QR 14,345,615 523,691 351,140 1,232,462 16,452,908 (997,919) 15,454,989

Less: Provision for doubtful debts

The Company is holding post dated cheques amounting to QR 2,132,058 (2003 : QR 2,036,458).

9

REINSURANCE BALANCES RECEIVABLE 2004 QR 2003 QR 3,031,076 1,338,268 4,369,344 (463,425) 3,905,919

Due from local reinsurers Due from foreign reinsurers

4,985,880 1,965,132 6,951,012 (97,184) 6,853,828

Less: Provision for doubtful debts

10

OTHER RECEIVABLES AND PREPAYMENTS 2004 QR 2003 QR 757,607 441,868 291,025 22,800 61,665 1,574,965

Accrued revenue Prepaid expenses Employees advances Refundable deposits Others

1,014,621 246,899 588,888 23,700 1,874,108

11

DUE FROM BRANCH

The General Assembly in its extraordinary meeting held on 4 March 2002 passed a resolution to establish a separate branch (Independently managed) to carry out insurance and reinsurance activities according to Islamic Sharia principles on a non-usury basis in all areas of investment. During 2002, the Company provided the Islamic branch with an amount of QR 5 million as a non-interest bearing loan refundable to the Company. Based on the audited financial statements of the branch for the year ended 31 December 2004, the total assets amounted to QR 21,450,013 (2003 : QR 10,118,124) and net profit amounted to QR 207,286 (2003 : loss of QR 618,773). The results of the branch have not been consolidated in these financial statements. 11

Al Khaleej Insurance Company Q.S.C.

NOTES TO THE FINANCIAL STATEMENTS

At 31 December 2004

12 PROPERTY AND EQUIPMENT Furniture and fixtures QR

Land QR Cost: At 1 January 2004 Additions during the year Disposals At 31 December 2004 Depreciation: At 1 January 2004 Depreciation charge for the year Depreciation on disposals At 31 December 2004 Net book value 31 December 2004 Net book value 31 December 2003

Building QR

Computers QR

Vehicles QR

Other Assets QR

Total QR

6,251,500 6,251,500

12,096,883 12,096,883

3,589,061 55,547 3,644,608

2,092,755 64,859 2,157,614

681,000 90,000 (48,500) 722,500

95,989 95,989

24,807,188 210,406 (48,500) 24,969,094

6,251,500 6,251,500

9,001,954 606,501 9,608,455 2,488,428 3,094,929

3,377,515 66,737 3,444,252 200,356 211,546

1,528,819 214,568 1,743,387 414,227 563,936

395,977 112,871 (8,471) 500,377 222,123 285,023

95,989 95,989 -

14,400,254 1,000,677 (8,471) 15,392,460 9,576,634 10,406,934

12

Al Khaleej Insurance Company Q.S.C.

NOTES TO THE FINANCIAL STATEMENTS

At 31 December 2004

13 SHARE CAPITAL Issued and fully paid up 2004 40,656,000 4,065,600 Issued and fully paid up 2003 29,040,000 2,904,000

Authorised capital Share capital of QR 10 each (QR) No. of shares of QR 10 each (Nos.) 40,656,000 4,065,600

14

STATUTORY RESERVE

As required by Qatar Commercial Companies Law No 5 of 2002 and the company's articles of association, 10% of the net profit for the year has been transferred to statutory reserve. The company may resolve to discontinue such annual transfers when the reserve totals 50% of the issued share capital.

15

PROPOSED BONUS SHARE ISSUE AND DIVIDEND

Proposed bonus share issue The Board of Directors has proposed to issue 1,016,400 bonus shares amounting to QR 10,164,000 being 25% of the existing share capital (2003: 1,161,600 bonus shares amounting to QR 11,616,000). Dividend proposed The Board of Directors has proposed a cash dividend of QR 1.5 per share totalling QR 6,098,400, which is subject to the approval of the shareholders at the Annual General Meeting (2003 : Nil).

16

NET OUTSTANDING CLAIMS 2004 QR 2003 QR 18,780,130 (12,154,471) 6,625,659

Gross outstanding claims Reinsurers' share of outstanding claims Net outstanding claims

18,292,587 (10,196,460) 8,096,127

17

ACCOUNTS PAYABLE AND OTHER LIABILITIES 2004 QR 2003 QR 3,128,956 3,169,096 2,581,859 8,879,911

Due to companies Premiums withheld from reinsurers Other payables

2,311,901 3,831,710 5,999,323 12,142,934

13

Al Khaleej Insurance Company Q.S.C.

NOTES TO THE FINANCIAL STATEMENTS

At 31 December 2004

18 EMPLOYEES' END OF SERVICE BENEFITS

Movements in the provision recognised in the balance sheet are as follows: 2004 QR Provision as at 1 January Provided during the year End of service benefits paid Provision as at 31 December 956,735 281,319 1,238,054 2003 QR 1,219,893 89,454 (352,612) 956,735

19

RELATED PARTY TRANSACTIONS

These represent transactions with related parties, i.e. significant shareholders, directors and senior management of the company and companies of which they are principal owners. Pricing policies and terms of these transactions are approved by the company's management. Transactions with related parties included in the income statement are as follows: 2004 QR Premiums written Claims paid 894,567 306,691 2003 QR 4,324,912 105,071

Balances due from related parties amounting to QR 1,625,609 as of 31 December 2004 are included in the balance sheet under accounts receivable (2003: QR 1,292,292).

20

FAIR VALUES OF FINANCIAL INSTRUMENTS

Financial instruments include deposits, cash, investment securities, receivables, payables, and certain other assets and liabilities. The fair values of the financial assets and liabilities, with the exception of certain available-for-sale investments carried at cost (see Note 7), are not materially different from their carrying values.

14

Al Khaleej Insurance Company Q.S.C.

NOTES TO THE FINANCIAL STATEMENTS

At 31 December 2004

21 RISK MANAGEMENT

Reinsurance risk In common with other insurance companies, in order to minimise financial exposure arising from large claims, the company, in the normal course of business, enters into agreements with other parties for reinsurance purposes. Such reinsurance arrangement provide for greater diversification of business, allow management to control exposure to potential losses arising from large risks, and provide additional capacity for growth. A significant portion of the reinsurance is effected under treaty, facultative and excess-of-loss reinsurance contracts. To minimise its exposure to significant losses from reinsurer insolvencies, the company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk. Reinsurance ceded contracts do not relieve the company from its obligations to policyholders and as a result the company remains liable for the portion of outstanding claims reinsured to the extent that the reinsurer fails to meet the obligations under the reinsurance agreements. The two largest reinsurers account for 50% of the maximum credit exposure at 31 December 2004 (2003 50%) Currency risk Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. Management believes that there is minimal risk of significant losses due to exchange rate fluctuations and consequently the company does not hedge its foreign currency exposure Other than balances in United States Dollars, to which the Qatari Riyal is pegged, there are no significant foreign currency financial asset due in foreign currencies included under reinsurance balances receivable. Interest rate risk Interest rate risk arises from the possibility that changes in interest rates will affect future profitability or the fair values of financial instruments. The company is exposed to interest rate risk on certain of its investment securities and deposits. The company limits interest rate risk by monitoring changes in interest rates in the currencies in which its cash and investments are denominated. Details of maturities of the major classes of interest bearing financial instruments as at 31 December are as follows: 31 December 2004 less than 1 year 1 to 5 years QR over 5 years Total Effective interest rate 1.5% 2.5% 9.75%

Demand deposits and cash Time deposits Available for sale investments

21,502,673 15,042,901 36,545,574

-

2,667,811 2,667,811

21,502,673 15,042,901 2,667,811 39,213,385

15

Al Khaleej Insurance Company Q.S.C.

NOTES TO THE FINANCIAL STATEMENTS

At 31 December 2004

21

RISK MANAGEMENT (continued)

Interest rate risk (continued) 31 December 2003 less than 1 year 1 to 5 years QR over 5 years Total Effective interest rate 1.25% 1.50% 9.75%

Demand deposits and cash Time deposits Available for sale investments

3,640,806 14,765,273 18,406,079

-

10,319,400 10,319,400

3,640,806 14,765,273 10,319,400 28,725,479

There is no significant difference between contractual repricing or maturity dates. Market price risk Market price risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices, whether those changes are caused by factors specific to the individual security, or its issuer, or factors affecting all securities traded in the market. The company is exposed to market risk with respect to its investments. The company limits market risk by maintaining a diversified portfolio. In addition, the company actively monitors the key factors that affect stock market movements. Credit risk Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. For all classes of financial assets held by the company, other than those relating to reinsurance contracts as described in reinsurance risk above, the maximum credit risk exposure to the company is the carrying value as disclosed in the balance sheet. The company seeks to limit its credit risk with respect to customers by monitoring outstanding receivables. Premiums and receivables comprise a large number of customers mainly within the State of Qatar. Three companies account for 20% of the accounts receivables as of 31 December 2004 (2003 : 17%). Two reinsurance companies account for 62% of the reinsurance receivable as of 31 December 2004 (2003 : 61%). Liquidity risk Liquidity risk is the risk that the company will not be able to meet its commitments associated with financial liabilities when they fall due. Liquidity requirements are monitored on monthly basis and management ensures that sufficient liquid funds are available to meet any commitments as they arise. A significant amount of funds are invested in local quoted securities. The majority of time deposits held by the company at the balance sheet date had original maturity periods not exceeding one year.

16

Al Khaleej Insurance Company Q.S.C.

NOTES TO THE FINANCIAL STATEMENTS

At 31 December 2004

22 SEGMENT INFORMATION

The company operates in the general insurance segment in the State of Qatar. For management purposes the company is organised into four business segments, marine and aviation, fire, general accidents and Motor. These segments are the basis on which the company reports its primary segment information. An analysis of the gross written premiums, net premiums earned for its main classes of general business is disclosed below. General accidents QR

Marine QR Revenues Gross written premiums Reinsurance ceded Net premium Commission income Total revenue Expenses Claims paid Reinsurer's share Net claims Commission paid Total expenses Movement in insurance reserves Net Insurance revenue 1,401,226 (1,069,306) 331,920 195,858 527,778 (300,216) 2,217,129 11,200,903 (10,004,631) 1,196,272 1,848,851 3,045,123

Fire QR

Motor QR

2004 QR

2003 QR

19,636,061 (18,579,334) 1,056,727 1,900,168 2,956,895

46,682,065 (42,214,286) 4,467,779 3,091,075 7,558,854

25,614,532 (1,164,730) 24,449,802 134,290 24,584,092

103,133,561 (71,962,981) 31,170,580 6,974,384 38,144,964

56,242,100 (32,048,317) 24,193,783 6,234,017 30,427,800

1,112,213 (858,309) 253,904 133,357 387,261 (1,142,120) 1,427,514

6,342,952 (6,404,371) (61,419) 387,979 326,560 394,562 7,626,856

16,192,187 (118,388) 16,073,799 404,347 16,478,146 (2,846,047) 5,259,899

25,048,578 (8,450,374) 16,598,204 1,121,541 17,719,745 (3,893,821) 16,531,398

35,659,275 (20,243,116) 15,416,159 788,280 16,204,439 (548,711) 13,674,650

As the company's activities are performed on an integrated basis, a segmental analysis of assets and liabilities between these segments would not be meaningful.

17

Al Khaleej Insurance Company Q.S.C.

NOTES TO THE FINANCIAL STATEMENTS

At 31 December 2004

23 CONTINGENT LIABILITY

At 31 December 2004 the company had contingent liabilities in respect of tender guarantees and other guarantees from which it is anticipated that no material liabilities will arise, amounting to QR 376,138 (2003: QR 330,715 ).

24

COMPARATIVE FIGURES

The corresponding figures for 2003 have been reclassified in order to conform with the presentation for the current year. Such reclassifications do not affect previously reported net profit or shareholders funds.

18

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