Annual Report - t’azur Report Eng .pdf · Movement in Qard Hassan (315,876) (184,521) Distributions to shareholders of surplus from takaful operations 33,653 -

2011

Annual Report

1

Takaful Insurance Company K.S.C. (Closed)

State of Kuwait

2

Board of Directors

Chairman´s Message

Board of Director's Report

Independent Auditort Report

Financial Statements

Table Of Contents4

5

6 - 7

8 - 9

10

Table Of Contents

1 837 837

www.tazur.com.kw

Takaful Insurance Company

3

HH SheikhSabah Al-Ahmad Al-Jaber Al-Sabah

Amir of the State of Kuwait

HH SheikhNawaf Al-Ahmad Al-Jaber Al-SabahCrown Prince of the State of Kuwait

HH SheikhJaber Mubarak Al-Sabah

Prime Minister of the State of Kuwait


State of Kuwait

4

Dr. Ahmed Bin Saleh Al-DehailanChairman

Mr. Abdulrazaq M. Al-WohaibManaging Director - C.E.O.

Mr. Sameer A. Al-GharaballiBoard Member

Mr. Ayham Y. GharaibehVice Chairman

Mr. Mostafa H. KhalifaBoard Member

Board of Directors

5

Dear shareholders,The Takaful concept has been established on solid values of synergy and cooperation to face the potential risks through the real and effective participation in creating effective solutions to those risks. We are proud at t’azur that these values represent the main principle in our business under the provision of Islamic Shariaa.This was confirmed by our Prophet Muhammad - peace be upon him - on the principle of Takaful in his Hadeeth and said: “He who reliefs a musilim Allah will relieve him of distress on the Day of Qeyama “ (Narrated by Muslim).One of the main responsibilities of t’azur takaful insurance company to the community and its members is promoting the awareness of insurance products compliant with the provisions of Islamic Shari'a by introducing products and services & innovative insurance solutions that serves the individual and society. We at t’azur are committed to uphold the values of Takaful in the community through mutual support and sharing of resources as t’azur aims to support the communities and raise the insurance awareness to achieve the true principle of Takaful.We at t’azur have made the efforts to put our vision on track of being leaders in building the company as leading takaful group with international aspirations and we have made the procedures to achieve high professionalism through risk management, strengthening the internal audit control and application of the international standards.I here assure that we will continue in moving forward to achieve our goals, support our economy, develop our human resources and commit to our values.

Regards,

Dr. Ahmed Bin Saleh Al-Dehailan Chairman

Chairman´s MessageIn the name of Allah the Merciful


State of Kuwait

6

Board of Directors ReportIn the name of Allah the Merciful

Dear Shareholders,It is with great pleasure, and on behalf of my colleagues, members of the board of t’azur Takaful Insurance Company, that I submit the annual report of the company for the financial year ending December 13, 2011 to document our company’s growth by the efforts its management and employees.The keenness of the Board of Directors over the past year to focus the efforts on increasing the company’s share of premiums written in the insurance market, and the exploitation of surplus funds available to the shareholders and the policyholders has allowed us to make higher profits for shareholders and policyholders, which achieved due to the well-studied strategies and market research.The Board of Directors of t’azur was keen to take the necessary steps to implement the international standards concerning policyholder’s protection and risk management in line with our strategy to take a leading role of the Takaful insurance market.

Dear Shareholders,Due to our commitment to our studied strategy and highest technical standards for Takaful activities, and our commitment to provide the highest level of services, t’azur has succeeded in writing good results and achieving its goals.t’azur Takaful has achieved the first place in terms of technical results between the takaful companies and is considered as one of the most prominent companies achieving operational profits. t’azur has also succeeded in obtaining 7.6% of the total premiums in the takaful market in Kuwait.The message that t’azur Takaful Insurance formulated in writing the takaful concept has also included its responsibility toward the community by supporting the sectors of health, education and insurance awareness. t’azur is also focusing on the localization of the jobs where it succeeded in exceeding the required rate for national employment and is willing to recruit and support the newly graduated Kuwaitis.

1.Investment ActivityThe management of the company was conservative in the investment activities by investing in low-risk financial products for the best management of the capital by choosing safe investment opportunities in line with t’azur’s policy to diversify the investment portfolio.

2.Insurance ActivityAt the level of insurance activity, the company had the efforts to acquire a share of the insurance market and managed to obtain a good market share that we are willing to increase in the coming

التقرير السنوي لسنة املنتهية في 31 ديسمبر 2011

7

years. The company has succeeded to increase the contribution rate underwritten by 50% and reached total contributions Written in 2011 of KD 2,949,355 while the claims paid for 2011 reached the amount of KD 980,760 as our believes in protecting our policyholders and to fulfill our commitment towards them.

3.Financial Results In terms of financial results, the company has achieved a total profit of KD 204,294 for the fiscal year 2011 with an increase rate of 74%. The total assets in 2011 reached KD 6,104,399 with an increase rate of 3.5%. The earnings per share amounted 4.09 fils, an increase of 74%

Dear Shareholders,After presenting the company’s achievements, we at t’azur promise you with more development of our company to fulfill a pioneering role in the Takaful market, to raise the insurance awareness to the public and commit to delivering the highest quality products and services by which we seek to repay a part of our country’s giving under the leadership of His Highness the Amir and His Highness the Crown Prince and the wise government and people of Kuwait. We here express our sincere thanks to our Shairaa advisory board for their efforts and cooperation and we also extend our thanks to the company’s executive management and all the employees for their efforts in achieving t’azur’s goals. And we here recall with pride and appreciation the role of Ministry of Commerce & Industry in supporting us.Finally, I take this opportunity to extend my sincere thanks and gratitude to our shareholders and policyholders for their trust and support.

Regards,


8

9


State of Kuwait

10

The financial statementsas at 31 Decmber 2011

Contents Page

Statement of financial position 11

Statement of comprehensive income 12

Statement of changes in equity 13

Statement of cash flows 14

Notes to the financial statements 15 Reporting entity 151.

Basis of preparation 152.

Significant accounting policies 173.

Wakala receivables 194.

Amounts due from policyholders’ fund 195.

Qard Hassan to policyholders’ fund 206.

Investment deposits 207.

Equity 208.

Investment income 219.

General and administrative expenses 2110.

Policyholders’ takaful operations 2111.

Policyholder’s statement of assets and liabilities 2412.

Policyholders’ statement of takaful operations 2513.

Related party 2714.

Risk management 2715.

Fair value 3516.

Earnings prohibited under Shari’a 3517.

Contingencies and commitments 3518.

11

Note2011KD

2010KD

Assets

Cash and bank balances 166,375 36,575

Wakala receivables 4 4,533,867 4,828,973

Amounts due from policyholders’ fund 5 487,388 433,640

Qard Hassan to policyholders’ fund 6 748,575 432,699

Other assets 3,194 2,929

Investment deposits 7 165,000 165,000

Total assets 6,104,399 5,899,816

Liabilities

Other liabilities 5,621 5,332

Total liabilities 5,621 5,332

Equity

Share capital 9 5,000,000 5,000,000

Statutory reserve 9 110,592 93,197

Voluntary reserve 9 110,592 93,197

Retained earnings 877,594 708,090

Total equity 6,098,778 5,894,484

Total liabilities and equity 6,104,399 5,899,816

The notes on following pages are an integral part of these financial statements.

Abdulrazaq Mohammed Al-WohaibManaging Director


Statement of financial positionas at 31 Decmber 2011


State of Kuwait

12

The notes on following pages are an integral part of these financial statements

Note 2011KD

2010KD

Investment income 9 182,332 145,110

General and administrative expenses 10 (8,386) (22,373)

Profit for the year before Board of Directors’ remuneration, contribution to Kuwait Founda-tion for the Advancement of Sciences (“KFAS”) and Zakat

173,946 122,737

Distributions to shareholders of surplus from takaful operations

3 33,653 -

Board of Directors’ remuneration - (3,000)

Contribution to KFAS (1,566) (1,105)

Zakat (1,739) (1,227)

Profit for the year 204,294 117,405

Other comprehensive income - -

Total comprehensive income for the year 204,294 117,405

Statement of comprehensive incomefor the year ended 31 Decmber 2011

13

The notes on following pages are an integral part of these financial statem

ents.

Share cap

ital

KD

Statutoryreserve

KD

Voluntaryreserve

KD

Retained

earningsK

D

Total

KD

Balance at 1 January 2010

5,000,00080,923

80,923615,233

5,777,079

Total comp

rehensive income for the year

--

-117,405

117,405

Transfers (note 9)-

12,27412,274

)24,548(-

Balance at 31 D

ecemb

er 20105,000,000

93,19793,197

708,0905,894,484

Balance at 1 January 2011

5,000,00093,197

93,197708,090

5,894,484

Total comp

rehensive income for the year

--

-204,294

204,294

Transfers (note 9)-

17,39517,395

)34,790(-

Balance at 31 D

ecemb

er 20115,000,000

110,592110,592

877,5946,098,778

Statem

ent of chang

en in equity

for the year ended

31 Decm

ber 2011


State of Kuwait

14

2011KD

2010KD

Cash flows from operating activities

Profit for the year 204,294 117,405

Adjustments for:

Investment income (182,332) (145,110)

Settlement of Qard Hassan (33,653) -

Changes in:

- Other assets (265) 40,548

- Other liabilities 289 (8,791)

Net cash (used in) / generated from operating activities (11,667) 4,052

Cash flows from investing activities

Decrease / (increase) in wakala receivables 295,106 (2,889,881)

Decrease in financial assets carried at fair value throughprofit or loss

- 2,819,245

Investment income 182,332 55,579

Net cash generated from / (used in) investing activities 477,438 (15,057)

Cash flows from financing activities

Movement in due from policyholders’ fund (53,748) (178,529)

Movement in Qard Hassan (315,876) (184,521)

Distributions to shareholders of surplus from takaful operations

33,653 -

Net cash used in financing activities (335,971) (363,050)

Net increase / (decrease) in cash and cash equivalents 129,800 (374,055)

Cash and cash equivalents at 1 January 36,575 410,630

Cash and equivalents at 31 December 166,375 36,575

Statement of cash flowsfor the year ended 31 Decmber 2011

The notes on pages 7 to 29 are an integral part of these financial statements.

15

1) Reporting entity

T’azur Takaful Insurance Company K.S.C. (Closed) (“the Company”) is a closed Kuwaiti Shareholding Company incorporated in the State of Kuwait on 17 July 2007. The Company was previously called Waseal Takaful Insurance Company and is registered under the Insurance Companies and Agent Law No. 24 of 1961, as amended. The Company is a subsidiary of T’azur Company B.S.C. (c) (“the Parent Company”) and is engaged in:Carrying out all types of takaful activities and related activities, including takaful and retakaful;Investing the funds available to the Company in various activities that commensurate with the Company’s objectives and not in conflict with the provisions of the Islamic Shari’a and established rules and regulations;Providing takaful and retakaful consultancy and technical studies to companies involved in similar activities; andInvesting the contributed funds from policyholders and returns thereon.Takaful is an Islamic alternative to a conventional insurance and investment program, based on the mutual funds concept, where each policyholder will receive his share in the surplus arising from takaful activities, in accordance with the Company’s articles of association and the approval of the Fatwa and Shari’a Supervisory Board.The Company conducts business on behalf of the policyholders and advances funds to the policyholders’ operations as and when required. The shareholders are responsible for liabilities incurred by policyholders in the event the policyholders’ fund is in deficit and the operations are liquidated. The Company holds the physical custody and title of all assets related to the policyholders’ operations; however such assets and liabilities together with the results of policyholders’ lines of business are disclosed in the note 13.The Company maintains separate books of accounts for policyholders and shareholders and income and expenses that are clearly identifiable are recorded in the respective books of accounts. The Fatwa and Shari’a Supervisory Board determines the basis of allocation of common expenses. All takaful and investment activities are conducted in accordance with Islamic Shari’a, as approved by the Fatwa and Shari’a Supervisory Board.These financial statements were authorized for issue by the Board of Directors of the Company on 15 January 2012. The shareholders of the Company have the power to amend these financial statements at the Annual General Assembly meeting.The Annual General Assembly held on 28 April 2011 approved the financial statements of the Company for the year ended 31 December 2010 and approved the Directors’ fees of KD 3,000.

2) Basis of preparation

a) Statement of compliance

The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and the requirements of the Kuwait Commercial Company Law of 1960, as amended, Ministerial Order No.18 of 1990 and the Company’s articles and memorandum of association.

b) Basis of measurement

The financial statements have been prepared on the historical cost or amortized cost basis.

Notes to the financial stataementsfor the year ended 31 Decmber 2011


State of Kuwait

16

c) Functional and presentation currency

These financial statements are presented in Kuwaiti Dinars (“KD”), which is the Company’s functional currency.

d) Amended standard adopted by the Company

IAS 24 Related party disclosures (Revised)The amended Standard clarified the definition of a related party to simplify the identification of such relationships and to eliminate inconsistencies in its application. The revised standard introduces a partial exemption of disclosure requirements for government related entities.

e) Use of estimates and judgments

The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results could differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which estimates are revised and in any future periods affected.Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements is included in the following notes:

Note 3 (c) – Impairment• Note 3 (d) – Provisions• Note 13 – Policyholders’ operations.•

f) Standards and interpretations not yet adopted

A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2011 and have not been applied in preparing these financial statements.The management anticipate that the adoption of these Standards and Interpretations once become effective in future periods will have no material financial impact on the financial statements in the period of initial application except for the adoption of IFRS 9, which becomes mandatory for the Company’s 2015 financial statements and may change the classification and measurement of financial assets.IFRS 9 is the first standard issued as part of a wider project to replace IAS 39. The new standard retains but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets: amortised cost and fair value. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. The guidance in IAS 39 on impairment of financial assets and hedge accounting continues to apply.Management of the Company are in the process of assessing the impact of the adoption of IFRS 9 on the Company’s financial statements.

17

3) Significant accounting policiesThe accounting policies set out below have been consistently applied by the Company.

a) Financial instruments

Non-derivative financial assetsi. The Company classifies non-derivative financial assets into the loans and receivables category.The Company initially recognizes loans and receivables on the date that they are originated. All other financial assets are recognized initially on trade date, which is the date that the Company becomes a party to the contractual provisions of the instrument.The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expires, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is created or retained by the Company is recognized as a separate asset or liability.

Loans and receivablesLoans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective profit method, less any impairment losses (see note 3(c)).Loans and receivables comprise of cash and bank balances, investment deposits, wakala receivables, amounts due from policyholders, Qard Hassan to policyholders’ fund and other receivables.

Non-derivative financial liabilitiesii. Financial liabilities comprises of other liabilities.All financial liabilities are recognized initially on the trade date, which is the date that the Company becomes a party to the contractual provisions of the instrument.The Company derecognizes a financial liability when its contractual obligations are discharged, cancelled or expire.The Company classifies non-derivative financial liabilities into the other financial liability category. Such financial liabilities are recognized initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using effective profit method.

b) Cash and cash equivalents

Cash and bank balances comprise cash balances and call deposits with original maturities of three months or less.

c) Wakala receivables

Wakala receivables comprise amounts invested with financial institutions in various investment products. Wakala receivables are stated at the gross amount receivable, net of deferred profit receivable and provision for impairment. Profit receivable is recognised on a time apportionment basis taking account of the profit rate attributable and the balance outstanding.

d) Offsetting

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.


State of Kuwait

18

e) Impairment

A financial asset not classified as at fair value through the statement of comprehensive income is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset, and that loss event(s) had an impact on the estimated future cash flows of that asset that can be estimated reliably.The Company considers evidence of impairment for financial assets measured at amortized cost (loans and receivables) at both a specific asset and collective level. All individually significant assets are assessed for specific impairment. Those found not to be specifically impaired are then collectively assessed for impairment that has been incurred but not yet identified. Assets that are not individually significant are collectively assessed for impairment by grouping together assets with similar risks characteristics. An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective profit rate. Losses are recognized in the statement of comprehensive income and reflected as an allowance account against loans and receivables. When an event occurring after the impairment was recognized causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through the statement of comprehensive income.

f) Provisions

A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle that obligation. Provisions are measured at the management’s best estimate of the expenditure required to settle the obligation at the reporting date and are discounted to present value where the effect is material.

g) Employee benefits

Kuwaiti employeesPensions and other social benefits for Kuwaiti employees are covered by the Public Institution for Social Security Scheme, to which employees and employers contribute monthly on a fixed-percentage-of-salaries basis. The Company’s share of contributions to this scheme is charged to the statement of comprehensive income in the year to which they relate.

Expatriate employeesExpatriate employees are entitled to an end of service indemnity payable under the Kuwait Labor Law and the Company’s by-laws based on the employees’ accumulated periods of service and latest entitlements of salaries and allowances.

h) Revenue recognition

Revenue represents income from wakala receivables, bank balances and investment deposits. Revenue from these items is recognized on a time apportionment basis using the effective profit rate of return on outstanding balances. Shareholders’ share of takaful surplus is determined based on the Company’s bylaws and takaful practices and is recognized in the statement of comprehensive income upon approval by the Board of Directors and the Fatwa and Shari’a Supervisory Board.

19

i) Kuwait Foundation for Advancement of Sciences (“KFAS”)

Contribution towards KFAS is computed at 1% of taxable profit of the Company after deducting Board of Directors’ remuneration in accordance with the modified calculation based on the KFAS’s Board of Directors resolution which states that the income from associates and subsidiaries, Board of Directors’ remuneration, transfer to statutory reserve should be excluded from the profit for the year when determining the contribution.

j) Zakat

Contribution towards Zakat is computed at 1% of the net profit for the period and provided for in accordance with the requirements of Law No. 46 of 2006 and charged to the statement of comprehensive income.

4) Wakala receivables

5) Amounts due from policyholders’ fund

The average profit rate attributable to wakala receivables is 3.58% (31 December 2010: 2.22%) per annum

2011KD

2010KD

At 1 January 433,640 255,111

Policyholders’ deficit absorbed by Qard Hassan (note 7) (349,529) (184,521)

Distributions to shareholders of surplus from takaful operations (note 3(n))

33,653 -

Net movement of amounts due from policyholders 335,971 363,050

Settlement of Qard Hassan (note 6) 33,653 -

At 31 December 487,388 433,640

2011KD

2010KD

Gross amount 4,572,826 4,869,496

Deferred income (38,959) (40,523)

4,533,867 4,828,973


State of Kuwait

20

6) Qard Hassan to policyholders’ fund

In accordance with the article of association, the deficit from takaful operations of the previous year is covered by ‘Qard Hassan’ from the shareholders. The ‘Qard Hassan’ given by the shareholders will be settled from the surplus from the takaful operations in future years at the discretion of the Company’s Directors and the Fatwa and Shari’a Supervisory Board.

7) Investment deposits

In accordance with Insurance Companies and Agent Law No. 24 of 1961, as amended, an amount of KD 165,000 (2010: KD 165,000) has been deposited with a Kuwaiti financial institution as security to underwrite general and takaful business. The average rate of profit earned on the deposits during 2011 was 3.4% (31 December 2010: 3.2%)

8) Equity

8.1 Share capitalThe authorized share capital of the Company is KD 10,000,000 comprised of 100 million shares of 100 fils each (31 December 2010: KD 10,000,000 comprised of 100 million shares of 100 fils each). The issued and paid-up share capital of the Company is KD 5,000,000 comprised of 50 million shares of 100 fils each (31 December 2010: KD 5,000,000 comprised of 50 million shares of 100 fils each).

8.2 Statutory reserveIn accordance with the Kuwait Commercial Companies Law of 1960, as amended, and the Company’s articles of association, 10% of the profit for the year is to be transferred to the statutory reserve until the reserve totals 50% of the paid up share capital. Distribution of this reserve is limited to the amount required to enable the payment of a dividend of 5% of paid up share capital to be made in years when retained earnings are not sufficient for the payment of a dividend of that amount.

8.2 Voluntary reserveIn accordance with the Company’s articles of association, 10% (2010: 10%) of the profit for the year before contribution to KFAS, Zakat and Directors’ remuneration is to be transferred to a voluntary reserve.

2011KD

2010KD

At 1 January 432,699 248,178

Policyholders’ deficit absorbed by Qard Hassan 349,529 184,521

Settlement of Qard Hassan )33,653( -

At 31 December 748,575 432,699

21

9) Investment income

2011KD

2010KD

Wakala profit 170,130 84,551

Profit from investment deposits 12,202 2,475

Gain on sale of investments at fair value through profitor loss

- 57,629

Other income - 455

182,332 145,110

10) General and administrative expenses

2011KD

2010KD

Staff costs 571,654 527,515

Rent 57,146 64,717

Advertising expenses 46,114 25,537

Professional fees 43,458 92,219

Stationery and computer expenses 30,139 13,550

Depreciation 22,552 12,277

Others 106,438 118,039

Total 877,501 853,854

General and administrative expenses allocated topolicyholder’s operations (note 13)

(869,115) (831,481)

8,386 22,373

The general and administrative expenses have been allocated to policyholders’ operations based on a decision of the Fatwa and Shari’a Supervisory Board (note 13).

11) Policyholders’ takaful operations

a) The significant accounting policies used in accounting for the takaful operations are set out below. All other accounting policies are consistent with those relating to the Company and have been consistently applied.

Contributions writteni. Gross contributions are credited to income at the inception of the policy and over the period of the takaful coverage, which represent the total contribution written in the year, including contributions on annual policies covering part or all of the following year. Unearned contribution represent the portion of contributions written related to the unexpired period of coverage. A minimum of 25% of the contributions collected are deferred for marine


State of Kuwait

22

takaful contracts and minimum of 40% of the contributions collected are deferred for all other types of takaful contracts except for life takaful as per the insurance law.Unearned contributions are reported under liabilities under policyholders’ liabilities.Contributions ceded to retakaful operations are deducted from gross contributions to arrive at net contribution.

Net claims incurredii. Claims incurred in the period are charged to policyholders’ statement of takaful operations.

Retakaful cedediii. Retakaful ceded are the contracts entered into by the Company with retakaful operators under which the Company is compensated for losses on policies issued. The benefits to which the Company is entitled under its retakaful contracts held are recognised as retakaful assets and included in policyholders’ statement of assets and liabilities. These assets consist of retakaful operator’s share of outstanding claims that are dependent on the expected claims and benefits arising under the related retakaful policies. Amounts recoverable from or due to retakaful operators are recognised consistently with the amounts associated with the underlying takaful contracts and in accordance with the terms of each retakaful contract. The retakaful liabilities are primarily contributions payable for retakaful contracts and are recognised as an expense when due in the policyholders’ statement of assets and liabilities. Retakaful assets are assessed for impairment on an ongoing basis. If there is objective evidence that the retakaful asset is impaired, the carrying amount of the retakaful asset is reduced to its recoverable amount and an impairment loss is recognized in the policyholders’ statement of takaful operations. Objective evidence for impairment is assessed as a result of an event that occurred after initial recognition of the retakaful asset that the Company may not be able to receive all the amounts due under the terms of the policy and that the event has a reliably measurable impact on the amounts that the Company will receive from the retakaful operator.

Contributions receivableiv. Contributions receivable represent contributions under collection on account of policies underwritten and are carried at its nominal value less impairment losses and provision for doubtful debts, if any.

Outstanding claims reservev. Estimates have to be made for both the expected ultimate cost of claims at the reporting date and for the expected ultimate cost of claims incurred but not reported at the reporting date. Outstanding claims reserve is based on estimates of the loss which will eventually be payable on each unpaid claim, established by management based on available information and on past experience and modified for changes in current conditions, increased exposure, rising claims cost and the severity and frequency of recent claims as appropriate.Incurred But Not Reported (“IBNR”) claims are provided based on statistical information related to actual past experience.Outstanding claims from prior years are reviewed periodically and adjusted based on current circumstances.

Liability adequacy testvi. At each reporting date, liability adequacy tests are performed to ensure the adequacy of the takaful liabilities using current estimates of future cash flows under takaful contracts. In performing these tests, current best estimates of future contractual cash flows and claims handling and administration expenses are used. Any deficiency is immediately charged to the policyholders’ statement of takaful operations by establishing a provision for losses.

23

b) Use of estimates and judgements

Key sources of estimation and uncertaintyThe ultimate liability arising from claims made under takaful policiesi. The estimation of the ultimate liability arising from the claims made under takaful contract is the most critical accounting estimate. There are several sources of uncertainty that need to be considered in the estimate of the liability that will be ultimately payable for such claims.Estimation of the ultimate cost of certain claims is a complex process and cannot be done using conventional techniques and therefore it is estimated based on management assessment.In the opinion of the management, the liability for takaful claims carried at the reporting date is adequate.

Allowance for contributions receivablei. The recoverable amount of contributions receivable is calculated as the present value of the expected future cash flows, discounted at the original effective profit rate. Short-term balances are not discounted.Specific provision for impairment is established if there is objective evidence that all the amounts due will not be collected. The amount of specific provision is determined as the difference between the carrying amount and the recoverable amount of the receivable. If in a subsequent period the amount of impairment loss decreases and the decrease can be linked objectively to an event occurring after the write down, the write-down or allowance is reversed through the policyholders’ statement of takaful operations.


State of Kuwait

24

12) Policyholder’s statement of assets and liabilities

2011KD

2010KD

Assets

Cash and bank balances 111,640 80,296

Investment deposits 797,421 391,421

Contribution receivables 1,096,542 794,092

Other receivables and prepayments 69,276 85,647

Retakaful share of outstanding claims 650,533 104,559

Property and equipment 96,409 36,270

Total assets 2,821,821 1,492,285

Liabilities

Takaful reserves:

Unearned contribution 637,682 429,296

Outstanding claims reserve 931,332 323,999

Life mathematical reserve 22,099 29,682

Incurred but not reported reserve 131,750 10,983

Total takaful reserves 1,722,863 793,960

Retakaful payable 406,251 419,250

Amount due to shareholders 487,388 433,640

Other liabilities 205,319 194,964

Net surplus / (deficit) for the year - (349,529)

Total liabilities 2,821,821 1,492,285

25

13) Po

licyhold

ers’ statement o

f takaful op

erations

2011 M

arine and aviation

KD

General

accidentKD

Motor

vehiclesKD

Fire

KD

Life & Medical

KD

Total

KD

Revenue

Gross contrib

ution written

239,130317,503

1,183,848286,209

922,6652,949,355

Less: Retakaful share of gross contrib

ution written

(222,940)(250,996)

(55,986)(240,123)

(165,565)(935,610)

Net contrib

ution written

16,19066,507

1,127,86246,086

757,1002,013,745

Unearned

contribution

1,95114,113

(189,493)(9,117)

(25,840)(208,386)

Net contrib

ution earned18,141

80,620938,369

36,969731,260

1,805,359

Policy issuance fees

1,392664

282,795404

1,499286,754

Retakaful com

mission

15,34211,601

8,16432,296

1,47868,881

Other incom

e6,844

5,61246,006

14,64822,045

95,155

Total revenue

41,71998,497

1,275,33484,317

756,2822,256,149

Exp

enses

Claim

s incurred25,096

11,137155,517

161,494627,516

980,760

Less: Retakaful share of claim

s incurred(23,077)

(17))37,363(

(147,066)(21,979)

(229,502)

Net claim

s incurred2,019

11,120118,154

14,428605,537

751,258

Outstand

ing claim reserve &

incurred b

utnot record

ed reserve

5903,573

52,245(2,233)

127,951182,126

Life mathem

atical reserve-

--

-(7,583)

(7,583)

Policy acq

uisition cost13,802

6,967352,306

5,52115,331

393,927

Surp

lus by segm

ents25,308

76,837752,629

66,60115,046

936,421

Allocation of general and adm

inistrative expenses (note 10)(59,500)

(80,949)(541,220)

(73,530)(113,916)

(869,115)

Net (d

eficit) / surp

lus from

takaful op

erations

(34,192)(4,112)

211,409(6,929)

(98,870)67,306

Distrib

ution to shareholders (note 3(n))

(33,653)

Settlem

ent of Qard

Hassan (note 6)

(33,653)

-


State of Kuwait

26

2010

Marine and aviation

KD

General ac-cident

KD

Motor

vehicles

KD

Fire

KD

Life &M

edical

KD

Total

KD

Revenue

Gross contribution w

ritten 134,404

364,756492,765

169,079805,439

1,966,443

Less: Retakaful share of gross contribution w

ritten(106,030)

(261,384)(52,109)

(151,104)(70,480)

(641,107)

Net contribution w

ritten28,374

103,372440,656

17,975734,959

1,325,336

Unearned contribution

(2,500)(18,000)

3,0007,000

(42,000)(52,500)

Net contribution earned

25,87485,372

443,65624,975

692,9591,272,836

Policy issuance income

3834,260

145,155333

1,228151,359

Retakaful com

mission

10,67836,223

3,42414,185

64,510

Other incom

e532

1,3671,899

6843,115

7,597

Total revenue

37,467127,222

594,13440,177

697,3021,496,302

Expenses

Claim

s incurred576

12,625193,489

6,216589,664

802,639

Less: Retakaful share of claim

s incurred-

--

--

-

Net claim

s incurred576

12,625193,489

6,216589,664

802,639

Outstand

ing claim reserve &

incurred b

ut not reported

reserve

69649

6,1771,410

2,74710,983

Life mathem

atical reserve-

--

-17,994

17,994

Policy acq

uisition cost5,975

8,645138,937

1,97227,205

182,734

Surp

lus by segm

ents30,847

105,303255,531

30,57959,692

481,952

Allocation of general and

adm

inistrative expenses

(note 10)83,575

(132,894)(196,889)

(88,190)(329,933)

(831,481)

Net (d

eficit) / surplus fro

m takaful o

peratio

ns(52,728)

(27,591)58,642

(57,611)(270,241)

(349,529)

27

14) Related party

Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operating decisions.Related parties include significant shareholders, directors and executive officers of the Company, close members of their families and companies of which they are the principal owners or over which they are able to exercise significant influenceSignificant related party balances and transactions are as follows:

2011KD

2010KD

Balances

Shareholders

Wakala receivable 1,775,051 3,525,123

Board of Directors’ remuneration - 3,000

Transactions

Shareholders

Investment income 148,342 82,674

Board of Directors’ remuneration - 3,000

Policyholders

Gross contributions written - 257,622

15) Risk management

a) Governance framework

The Company’s risk and financial management framework is to protect the Company’s shareholders and policyholders from events that hinder the sustainable achievement of financial performance objectives, including failing to exploit opportunities. Key management recognises the critical importance of having efficient and effective risk management systems in place.The Company is establishing a risk management function with clear terms of reference from the Board of Directors and the associated executive management committees. This will supplement with a clear organisational structure with documented delegated authorities and responsibilities from the Board of Directors to executive management committees and senior managers. Also, a Company policy framework is being put in place to set out the risk profiles for the Company, risk management, control and business conduct standards for the Company’s operations.

b) Regulatory framework

Law No. 24 of 1961, Law No.13 of 1962 and Decree No. 5 of 1989, and the rules and regulations issued by the Ministry of Commerce provide the regulatory framework for the insurance industry in Kuwait. All insurance companies operating in Kuwait are required to follow these rules and regulations.The following are the key regulations governing the operations of the Company:For the life and capital insurance contracts issued in Kuwait, the full mathematical reserves are to be retained in Kuwait


State of Kuwait

28

For marine insurance contracts, at least 15% of the contributions collected in the previous year are to be retained in Kuwait. For all other types of insurance, at least 30% of the contributions collected in the previous year are to be retained in Kuwait.The funds retained in Kuwait should be invested as under:

A minimum of 40% of the funds are to be in the form of cash deposits in a bank operating in –KuwaitA maximum of 25% could be invested in foreign securities (foreign government bonds or foreign –securities - bonds and shareholding companies)A maximum of 30% should be invested in Kuwaiti companies’ shares or bonds –A maximum of 15% should be in a current account with a bank operating in Kuwait –

The residual value may be invested in bonds issued or guaranteed by the Government of Kuwait, properties based in Kuwait or loans secured by first mortgage of properties based in Kuwait.The management is responsible for monitoring compliance with the above regulation and has a delegated authorities and responsibilities from the Board of Directors to ensure compliance.

c) Takaful risk

Takaful risk is the risk that actual claims payable to policyholders in respect of insured events exceed the carrying amount of takaful liabilities. This could occur because the frequency or amounts of claims are more than expected.

Frequency and amounts of claimsThe frequency and amounts of claims can be affected by several factors. The Company underwrites mainly marine and aviation, fire and general accident, motor and life risks. These are regarded as short-term takaful contracts as claims are normally advised and settled within one year of the insured event taking place. This helps to mitigate takaful risk.

Non-life takaful contracts The Company principally issues the following types of general takaful contracts: Marine-Cargo, Hull Comprehensive & Third Party Liability, Fire, House-holders Comprehensive, Contractors All Risks, Erection All Risks, Machinery Breakdown, Electronic Equipment, Burglary, Personal Accident, Cash in Transit, Fidelity Guarantee, Plate Glass, Workmen Compensation, Third Party Liability, Professional Indemnity, Bankers Blanket, Travel Assistance, Motor Comprehensive, and Motor Third Party Liability. Healthcare contracts provide medical expense cover to policyholders. Risks under non-life takaful policies usually cover twelve month duration.

Marine and aviationFor marine takaful the main risks are loss or damage to marine craft and accidents resulting in the total or partial loss of cargoes.The underwriting strategy for the marine class of business is to ensure that policies are well diversified in terms of vessels and shipping routes covered. The Company has retakaful cover to limit losses for any individual claim.

Fire and accident For property takaful contracts the main risks are fire and business interruption. The Company has only underwritten policies for properties containing fire detection equipment.These contracts are underwritten by reference to the replacement value of the properties and contents insured. The cost of rebuilding properties and obtaining replacement contents and the time taken to restart operations which leads to business interruptions are the main factors that influence the level of claims. The Company has retakaful cover for such damage to limit losses for any individual claim.

MotorFor motor contracts the main risks are claims for death and bodily injury and the replacement or repair of vehicles. The Company has only underwritten comprehensive polices for owner/drivers over 21

29

years of age. The Company has retakaful cover to limit losses for any individual claim to KD 30,000.The level of court awards for deaths and to injured parties and the replacement costs of, and repairs to motor vehicles are the key factors that influence the level of claims.The Company has also limited its exposure by imposing maximum claim amounts on certain contracts as well as the use of retakaful arrangements in order to limit exposure to catastrophic events (e.g. hurricanes, earthquakes and flood damages).

The table below sets out the concentration of non-life takaful outstanding claims by type of contract.

31 December 2011 31 December 2010

Gross liabilities

KD

Retakaful share of liabilities

KD

Netliabilities

KD

Gross liabilities

KD


KD

Netliabilities

KD

Marine and avia-tion 66,363 61,657 4,706 33,030 26,963 6,067

Generalaccident 162,088 121,043 41,045 156,139 104,554 51,585

Motorvehicles 763,194 263,413 499,781 343,531 85,488 258,043

Fire 633,593 615,334 18,259 97,523 86,148 11,375

1,625,238 1,061,447 563,791 630,223 303,153 327,070

All non-life takaful contracts are in Kuwait, the analysis above would not be materially different if based on the countries in which the counterparties are situated.

Key assumptions The principal assumption underlying the estimates is the head departments past claims development experience. This includes assumptions in respect of average claim costs, claim handling costs and claim numbers for each accident year. Additional qualitative judgments are used to assess the extent to which past trends may not apply in the future, for example once-off occurrence, changes in market factors such as public attitude to claiming, economic conditions, as well as internal factors such as portfolio mix, policy conditions and claims handling procedures. Judgment is further used to assess the extent to which external factors such as judicial decisions and government legislation affect the estimates. Other key assumptions include variation in profit rates, delays in settlement and changes in foreign currency rates.

Life takaful contracts For life takaful the main risks are claims for medical, death or permanent disability. The underwriting strategy for the life of business is to ensure that policies are well diversified in terms of type of risk and level of insured benefit. This is achieved through the use of medical screening in order to ensure that pricing takes account of current health conditions and family medical history. For healthcare contracts the most significant risks arise from lifestyle changes, epidemics and medical science and technology improvements. These risks do not vary significantly in relation to the location of the risk insured by the Company, type of risk insured and by industry. Life takaful contracts offered by the Company include group whole life takaful and group medical takaful. The main risks that the Company is exposed to are as follows:

Mortality risk - risk of loss arising due to policyholder death experience being different than • expected.


State of Kuwait

30

Morbidity risk - risk of loss arising due to policyholder health experience being different than • expected.Longevity risk - risk of loss arising due to the annuitant living longer than expected.• Investment return risk - risk of loss arising from actual returns being different than expected.• Expense risk - risk of loss arising from expense experience being different than expected.• Policyholder decision risk - risk of loss arising due to policyholder experiences (lapses and • surrenders) being different than expected.

These risks do not vary significantly in relation to the location of the risk insured by the Company as life business mainly written in Gulf countries. The Company’s underwriting strategy is designed to ensure that risks are well diversified in terms of type of risk and level of insured benefits. This is largely achieved through diversification across industry sectors and geography, the use of medical screening in order to ensure that pricing takes account of current health conditions and family medical history, regular review of actual claims experience and product pricing, as well as detailed claims handling procedures. Underwriting limits are in place to enforce appropriate risk selection criteria. For example, the Company has the right not to renew individual policies, it can impose deductibles and it has the right to reject the payment of fraudulent claims. Takaful contracts also entitle the Company to pursue third parties for payment of some or all costs. The Company further enforces a policy of actively managing and prompt pursuing of claims, in order to reduce its exposure to unpredictable future developments that can negatively impact the Company. For contracts where death or disabilities are the insured risks the significant factors that could increase the overall frequencies of claims are epidemics, widespread changes in lifestyle and natural disasters, resulting in earlier or more claims than expected. The takaful risks described above are also affected by the contract holders’ right to pay reduced or no future contributions, to terminate the takaful contract completely. As a result, the amount of takaful risk is also subject to contract holder behaviour. The table below sets out the concentration of life takaful outstanding claims by type of contract.

31 December 2011 31 December 2010

Type of contract

Gross liabilities

KD


KD

Netliabilities

KD

Gross liabilities

KD


KD

Netliabilities

KD

Group Medical 490,056 5,911 484,145 346,696 14,047 332,649

Group Life 33,574 9,180 24,394 60,826 31,144 29,682

Total life takaful contract 523,630 15,091 508,539 407,522 45,191 362,331

All life takaful contracts are in Kuwait, the analysis above would not be materially different if based on the countries in which the counterparties are situated.

Key assumptions Material judgment is required in determining the liabilities and in the choice of assumptions. Assumptions in use are based on past experience, current internal data, external market indices and benchmarks which reflect current observable market prices and other published information. Assumptions and prudent estimates are determined at the date of valuation. Assumptions are further evaluated on a continuous basis in order to ensure realistic and reasonable valuations. Life takaful contract estimates are either based on current assumptions or calculated using the assumptions established at the time the contract was issued, in which case a margin for risk and adverse deviation is generally included. Assumptions are made in relation to future deaths, voluntary

31

terminations, investment returns and administration expenses. If the liabilities are not adequate, the assumptions are altered to reflect the current estimates.

d) Financial risks

Credit riskCredit risk is the risk of financial loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations.The following policies and procedures are in place to mitigate the exposure to credit risk:

Credit risk policy setting out the assessment and determination of what constitutes credit risk for • the Company. Compliance with the policy is monitored and exposures and breaches are reported to the Board of Directors. The policy is regularly reviewed for pertinence and for changes in the risk environment.Retakaful is placed with counterparties that have a good credit rating and concentration of risk is • avoided by following policy guidelines in respect of counterparty limits that are set on a yearly basis by the board of directors and are subject to regular reviews. At each reporting date, management performs an assessment of creditworthiness of retakaful operators and updates the retakaful purchase strategy, ascertaining suitable allowance for impairment.Maximum amounts and limits that may be advanced to corporate counterparties by reference to • their long term credit ratings.The credit risk in respect of customer balances, incurred on non-payment of contributions will • only persist during the grace period specified in the policy document until expiry, when the policy is either paid up or terminated. Commission paid to intermediaries is netted off against amounts receivable from them to reduce the risk of doubtful debts.

The tables below show the maximum exposure to credit risk for the components of the statement of financial position:

2011KD

2010KD

Shareholders

Bank balances 166,375 36,575

Investment deposits 165,000 165,000

Wakala receivables 4,533,867 4,828,973

Amounts due from policyholders’ fund 420,082 433,640

Qard Hassan to policyholders’ fund 782,228 432,699

Other assets 3,194 2,929

6,070,746 5,899,816

Policyholders

Bank balances 111,046 80,296

Other receivable and prepayments 69,276 85,647

Contributions receivable 1,096,542 794,092

Retakaful share of outstanding claims 650,533 104,559

1,927,397 1,064,594

7,998,143 6,964,410


State of Kuwait

32

Credit quality per class of financial assets

The credit quality of financial assets is managed using internal credit ratings. The table below shows the credit quality by class of asset for related balance sheet lines, based on the internal credit rating system.

Neither past due nor impaired

High gradeKD

Standard gradeKD

TotalKD

2011

Shareholders

Bank balances 166,375 - 166,375

Investment deposits 165,000 - 165,000

Wakala receivables 4,533,867 - 4,533,867

Amounts due from policyholders’ fund 420,082 - 420,082

Qard Hassan to policyholders’ fund 782,228 - 782,228

Other assets 6,340 - 6,340

6,073,892 6,073,892


High gradeKD

Standard gradeKD

TotalKD

Policyholders

Bank balances 111,640 - 111,640Other receivable and prepayments - 63,536 63,536Contributions receivable - 1,096,542 1,096,542Retakaful share of outstanding claims - 650,533 650,533

111,640 1,810,611 1,922,251


High gradeKD

Standard gradeKD

TotalKD

2010

Shareholders

Cash and bank balances 36,575 - 36,575

Investment deposits 165,000 - 165,000

Wakala receivables 4,828,973 - 4,828,973

Other assets 2,929 - 2,929

5,033,477 5,033,477

33


High gradeKD

Standard gradeKD

TotalKD

Policyholders

Bank balances 80,296 - 80,296

Other receivable and prepayments - 85,647 85,647

Contributions receivable - 794,092 794,092

Retakaful share of outstanding claims - 104,559 104,559

80,296 984,298 1,064,594

Liquidity riskLiquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. Liquidity requirements are monitored on a monthly basis and management ensures that sufficient funds are available to meet any commitments as they arise. The table below summarises the maturity profile of the financial liabilities of the Company based on remaining undiscounted contractual obligations, when maturity profiles are determined on the discounted estimated timing of net cash outflows. Repayments which are subject to notice are treated as if notice were to be given immediately.

Within 1 – 3 month

KD

Within 3 - 6month

KD

Within 6 - 12month

KD

More than 1 year

KD

Total

KD

2011

Shareholders

Other liabilities 3,410 - - - 3,410

Total 3,410 - - - 3,410

Policyholders

Retakaful balances payable 280,000 125,980 405,980

Unearned contributions (net) 6,580 653,201 659,781

Outstanding claims reserve (gross)

258,500 320,800 212,082 140,000 931,382

Life mathematical reserve 22,099 22,099

Incurred but not reported reserve

131,750 131,750

Other liabilities 109,000 25,000 96,590 230,590

Amount due to shareholders 420,082 420,082

Total liabilities 679,589 1,124,981 343,832 656,672 2,805,074

682,999 1,124,981 343,832 656,672 2,808,484


State of Kuwait

34

Within 1–3 monthKD

Within 3-6 monthKD

Within 6-12 monthKD

More than 1 yearKD

TotalKD

2010Shareholders

Other liabilities 5,332 - - - 5,332

Total 5,332 - - - 5,332

Policyholders

Retakaful balances payable

318,078 101,172 - - 419,250

Unearned contributions (net)

5,999 423,297 - - 429,296

Outstanding claims reserve (gross)

86,525 - 237,474 - 323,999

Life mathematical reserve

- - - 29,682 29,682

Incurred but not reported reserve

- - - 10,983 10,983

Other liabilities 76,858 78,478 - 39,628 194,964

Amount due to shareholders

- - - 433,640 433,640

Total liabilities 587,460 602,947 237,474 513,933 1,841,814

Market riskMarket risk is the risk that changes in market prices, such as foreign exchange rates, profit rates and equity prices will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.At the reporting date, the Company is exposed to market risk arises from profit rate risk.The Company limits profit rate risk by maintaining a diversified portfolio and by monitoring the developments in markets.

Profit rate risk Profit rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market profit rates.

35

16) Fair value

The fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. Underlying the definition of fair value is the presumption that the Company is a going concern without any intention or need to liquidate, curtail materially the scale of its operations or undertake a transaction on adverse terms. In the opinion of the management, the estimated fair value of financial assets and liabilities that are not carried at fair value at the reporting date is not materially different from their carrying value.

17) Earnings prohibited under Shari’a

There were no earnings retained during the year (31 December 2010: nil) from transactions which are not permitted under Shari’a.

18) Contingencies and commitments

The Company is a defendant in a number of cases brought by takaful contract holders in respect of claims which the Company disputes. While it is not possible to predict the eventual outcome of such legal actions, management has made provisions which, in their opinion, are adequate to cover any resultant liabilities.

Documents

Annual Report - t’azur Report Eng .pdf · Movement in Qard Hassan (315,876) (184,521) Distributions to shareholders of surplus from takaful operations 33,653 -