Arab Re Annual Report Reports/AnnualReport2… · For the Financial Year Ended December 31,2009. Report of the Board of Directors. DearShareholders, The Board of Directors of Arab

Arab Reinsurance Company SAL

Presents its

2009

Annual Report

Independent Auditor's Report

Letter From The

Chairman

Board of Directors

Management Board of Directors’

Report

Statement of Financial

Position

Notes to Financial

Statements

Statementof Cash Flows

Statement of Changes in Equity

Statement of Income

Shareholders

Dear Shareholders,

It gives me great pleasure to present to the Shareholders of Arab Reinsurance Company (Arab Re) a report on its activities, along with thefinancial statements on its achievements, during the year ended 31/12/2009. In this report, we will be dwelling on the most important financial,technical and administrative developments that have taken place during the reporting period. In fact, our company has exerted every effort tocounter the effects of the economic crisis which hit the international economy at the end of 2008. Moreover, our company achieved a satisfactoryreturn, due to the strategy of the executive management based on geographical diversification and distribution in incoming business, and to theinvestment policy adopted by the Board of Directors.In this respect, we are pleased to state the following:

1. Arab Re’s portfolio comprises of inward reinsurance business from all Arab insurance markets, as well as neighbouring markets in theAfro-Asian area. This portfolio equalled the one which was expected at the beginning of the year. However, we would have achieved anincrease, hadn’t we lost business in the Saudi market. In fact, our company was assigned a B+ (Good) financial strength rating by A.M.Best Co., which was acceptable by SAMA. Nevertheless, SAMA requested the sovereign rating of the country in which the companyoperates, to be of a rating not less than BBB or higher by S&P’s. This prerequisite reflected negatively on our company, due to the latestsovereign rating of the Republic of Lebanon which is equivalent to B/B. Still, we are restlessly pursuing in every way the efforts torecuperate this important market.

In addition, our company aims at expanding its branches to include life insurance, medical insurance, and pension, via a specializedtechnical team.

Furthermore, claims paid in 2009 amounted to USD 50.8 million, which is the highest number since the establishment of the company;thus giving a clear idea on our liquidity and reputation in paying our dues on time to clients without any delay.

2. Arab Re’s investment policy, adopted by the executive management and based on the instructions of the Board of Directors, attained areturn on investment equivalent to 6.2% annually. This return was achieved despite the difficult financial circumstances and volatilitycaused by the economic crisis which hit most of the financial markets, and the settlement of large claims; thus, missing the opportunity toachieve returns on these investments compared to the previous year. Moreover, strengthening the investment department with leadingcompetences of extensive expertise helped in surpassing the effects of the aforementioned crisis, and was an additional factor pushing toincreasing the return an investments' rates and their diversification in the future, especially after the success of the workshop organized bythe company to leaders of insurance companies in the GCC region and the Levant, and further workshops which will be planned andorganized for the other neighbouring Arab countries.

Letter From The Chairman

3. The instructions of the Board of Directors pertaining to training and development, participation in scientific seminars, and recruitingexperienced competences, helped in developing the technical, financial, and administrative work of the company. This was achievedwith the aid of an international specialized body that submitted a study describing and proposing developments as to administration. Aswell, developed exams to most employees were organized aiming at discovering in-house expertise and resources; thus developing thebusiness in the near future.In addition, the follow-up and effort of the audit committee and the commitment of the internal audit section to the plan adopted by theBoard of Directors, led efficiently to controlling and developing work in all of the company’s departments, adding a new characteristicwhich is fundamental and positive in the study of the international companies’ rating. All of these improvements went in parallel with thereceipt of many offers to develop the IT department’s work via putting a 3 years plan which will be adopted very soon, and the upgradeof the company’s website to be more effective

Letter From The Chairman

The full coordination between the Board of Directors and the executive management and the continuous support of our Shareholders are basicelements to achieve stability in the company’s portfolio, maintain its excellent liquidity, and enhance its financial strength rating.

Based on the above-mentioned positive developments, and on the success in overcoming difficulties, which reflected in the numbers andprofits achieved in the attached financial statements, I would like to stress that we are confident in a bright future, and I am strongly hopefulthat our company will record better growth rate and profitability, insha’allah.

Peace be upon you and God bless.

Khaldoun BarakatChairman of the Board

Board of DirectorsChairman

Member

Member

Member

Member

Member

Member

Vice Chairman

Member

Management

Sheikh Khaldoun BarakatChairman

Mr. Tannous FeghaliVice-Chairman

Mr. Salim Kojok Mr. Robert IraniMr. Zouhair DaoudAssistant General Manager

(Administration)Assistant General Manager

(Finance)Assistant General Manager

(Investment)

ManagementHeads of Departments

Managers Arab Reinsurance Pool

Mr. Mohamed Hammoud Mr. Mohammed Naji Ahmed

ManagerTechnical

Ms. Basma BarakatTechnical

Mr. Ibrahim YassinInternal Audit

For the Financial Year Ended December 31,2009

Report of the Board of DirectorsDear Shareholders,

The Board of Directors of Arab Reinsurance Company is pleased to submit to you its Annual Report, together with the balance sheet as at December 31, 2009 and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes. The report and statements were prepared in accordance with the International Financial Reporting Standards (IFRS).

Our company continues to achieve positive results. Our net profit from the technical and financial operations, as reflected in the accompanying financial statements for 2009, has amounted to USD 4.7 million, compared to USD 9.5 million in the previous year, noting that 2008 profits included special income amounting to approximately USD 2.8 million. These results were achieved despite the difficult economic circumstances following the financial crisis which hit the international economies of the world at the end of the previous year. Therefore, the new management exerted exceptional efforts to counter the impacts of this crisis and achieve satisfactory investment return at an annual rate of 6.2%.

In addition, paid claims amounted to USD 50.8 million, the highest number since the establishment of the company. Though this number gave an obvious proof of the company’s financial liquidity and reputation in paying its dues on time, it reflected negatively on the company’s profits. The company continued its efforts in order to maintain the increase in the business portfolio which prevailed during previous years. However, our loss of treaty business in the Saudi market in 2009 led to the decrease in premium income at 3.7% compared to 2008, though this income was very similar to what was previously expected at the beginning of the year. In fact, relevant authorities in the Saudi market made it obligatory to cede any treaty business to reinsurers operating in a country with a sovereign rating not less than BBB or higher by the rating agency S&P’s, noting that the latest sovereign rating of the Republic of Lebanon is B/B. Here, it is worth noting that loosing the important Saudi market could have lead to a drawback in the company’s business portfolio not less than 13%, due to the business size of this market which is equivalent to USD 8 million per year. Nevertheless, upon the BOD’s recommendation to increase the participation in the current and future company’s business, special efforts were exerted to limit the above drawback.

In spite of the difficult economic circumstances and severe competition prevailing in the insurance market, our future plan of production will continue to achieve a higher premium income not less than 7%. And, we do hope that all of our efforts will end in recuperating the Saudi market; thus increasing the company’s portfolio and diversification, as well as invested funds, which will enable us to reach our anticipated goals.

In 2009, our company accomplished a positive enhancement in its rating, being assigned a B+ (Good) with a positive outlook by A.M. Best Co. In fact, the report of the rating agency praised the company’s performance in the technical, financial, investments and administrative sides. This opinion will assist us in achieving a growth in our portfolio and enhancing our company’s rating in the future, even if the sovereign rating issue is still existentThe company’s executive management achieved the plan adopted by the Board of Directors and related to the development of human resources. In this respect, a contract was signed with a leading specialized institution. Mission started according to a pre-planned agenda. In parallel, the executive management continued to recruit unique expertise in all departments.

Finally, we would like to express to our clients and to our Shareholders, our sincere thanks and appreciation for their support and cooperation. We also take this opportunity to thank our staff on their persistent efforts and admirable performance. May God bless our efforts, and we hope that you will find our audited financial statements, relating to our company’s results for the year ended December 31, 2009,compared to year 2008, to be satisfactory .

Board of Directors

Fire35.1%

Accident21.1%

Engineering23.1%

Life0.4% Cargo

13.7% Hull6.5%

Aviation0.1%

For the Financial Year Ended December 31,2009Report of the Board of Directors

1) Operating Activities a) Gross Premium Income (GPI)GPI in 2009 was USD 62,563,821 compared to USD 65,005,573 in the previous year. GPI generated from the Arab markets represented 78% of our portfolio.The following table shows the GPI for each class of business in 2009 compared to 2008 :

Branch 2009 2008 Increase(Decrease) %

MarineCargo 6,781,675 8,917,147 (23.95)Hull 3,414,602 4,215,510 (19.00)Aviation 54,000 86,788 (37.78)Total Marine 10,250,277 13,219,445 (22.46)Non-MarineFire 22,574,628 22,796,793 (0.97)General Accident 16,349,204 13,713,603 19.22Engineering 13,103,694 14,997,846 (12.63)Total Non-Marine 52,027,526 51,508,242 1.01Life 286,018 277,886 2.93Total Gross Premium 62,563,821 65,005,573 (3.76)

Currency: US Dollars

2008

2009

Gross Premium Distribution

Fire36.1%

Accident26.1%

Engineering20.9%

Life0.5%Cargo

10.8%Hull5.5%

Aviation0.1%


b) Retained PremiumsThe company retains various percentages of its acceptances in the various reinsurance classes. This retention is protected by appropriateExcess of Loss covers. Retained premiums in all classes during the period under review, amounted to USD 47,265,396 representing 75.5% ofGPI, compared to USD 49,065,052 in the previous year which also represented 75.5% of GPI. The stability in the retention’s percentage in2008 and 2009 is due to the increase in the retention’s percentage from retro treaties .c) Acquisition CostsAcquisition costs include commissions, brokerage, profit commission and other costs relating to reinsurance activities. The total amount paidduring the period under review amounted to USD 17,776,446, compared to USD 19,362,522 in the previous year. The percentage ofacquisition costs this year was equivalent to 28.4% of GPI, compared to 29.8% in the previous year. The continuous decrease in commissionsis due to the continuous increase in facultative business and XOL of total portfolio, which is characterised by low commissions according toother businesses .d) Claims PaidTotal claims paid during 2009 amounted to USD 50,837,056 compared to USD 35,283,010 in the previous year, representing an increase of 44%. This increase was a result of settling several losses during the previous year, reserved for earlier, in addition to settling several losses in the period under review.The company’s retention (net of our retrocessionnaires’ share) of paid claims was USD 36,882,756 compared to USD 24,470,037 in the previous year, representing an increase USD 12,412,719 (50.7%). The claims paid during the period under review represent 72.5% of retained premiums compared to 69.4% in the previous year .e) Technical ProvisionsTechnical provisions at the end of year 2009 amounted to USD 49,965,000 compared to USD 53,215,000 in the previous year, with a decreaseof USD 3,250,000 representing 6.1%, due to the adoption of a new method in the calculation of provisions for unearned premiums, approvedby the BOD. These provisions represent 106% of the retained premiums in 2009 .The following table shows the technical provisions in 2009 compared to 2008: Currency: US Dollars

Technical Provisions 2008 2008

Provision for Unearned Premiums 12,615,000 16,715,000

Provision for Outstanding Claims 37,350,000 36,500,000

Total 49,965,000 53,215,000

The provision for outstanding claims includes claims incurred but not reported (IBNR) amounting to USD 6,500,000, with no change compared to previous year, and in compliance with our conservative approach .


Technical Provisions to Retained Premiums

f) Result of Reinsurance ActivitiesFor the year under review, our company recorded a technical loss amounting to USD 2,136,706 compared to a profit amounting to USD 573,988 in the previous year.As mentioned above, this loss is due to the settlement of several losses, adequately reserved for, in all branches, especially in the fire branch.The breakdown being as follows:

Currency: US Dollars

BranchReinsurance Result

2009 2008

Marine 387,567 1,729,530

Non-Marine (2,783,954) (1,395,359)

Life 259,681 239,817

Total (2,136,706) 573,988

106.0%108.0%109.0%

124.2%132.7%

20092008200720062005


2) InvestmentsCash at banks, bank term deposits and investments in securities including accrued interest receivable and cumulative change in fair value of available-for-sale securities amounted to USD 114,377,854 in 2009 compared to USD 117,639,755 in 2008, with a decrease of USD 3,261,901, representing 2.8%.The reason behind this decrease is the liquidation of some deposits to settle claims caused by the technical business; thus giving a clear proof on our financial liquidity and commitment to pay our dues. However, in 2009, the return on investment was affected by this decrease, amounting to USD 6,585,026 compared to USD 9,031,489 in the previous year. Moreover, the return on investment for 2008 included an exceptional profit equivalent to USD 1,400,000 due to the selling of securities. In fact, in light of the difficult economic circumstances, this return is considered satisfactory.Moreover, the expected return has exceeded the previously budgeted numbers at the beginning of the year, hadn’t it been for the loss which resulted from selling one of our investments. It is worth mentioning that all of the company’s investments in term deposits are maintained off-shore with banks and financial institutions.

3) General and Administrative ExpensesThese expenses amounted to USD 3,131,760 in 2009 compared to USD 3,100,759 in 2008, with an increase of USD 31,001 representing 1% .

4) Results of the Financial YearThe Board of Directors, in its meeting held on March 26, 2010, decided to appropriate the net income of the financial year ended December 31,2009, subject to the approval of the General Assembly of the company’s Shareholders, as follows :

Currency: US Dollars2008

Net income for the year 4,660,727Proposed appropriations: - Transfer to capital reserve at 10% 466,073

- Distribution of dividends at 5% of paid up capital as at December 31, 2009 as a first allotment according to Company's by-laws 2,500,000

- Distribution of dividends at 5% of paid up capital as at December 31, 2009 as an additional allotment 2,500,000Total proposed appropriations 5,466,073Net balance after proposed appropriations to transfer from the retained earnings account (805,346)


The appropriations of net income, except for the transfer to capital reserve, are subject to the approval of the General Assembly of the company’s Shareholders, which will be held to approve the financial statements for the year ended December 31, 2009.According to Article 60 of the company’s by-laws, 10% of the annual net income should be transferred to capital reserve until the total of thisreserve becomes equal to the company’s capital. This reserve includes the legal reserve required according to Article 165 of the Lebanese Codeof Commerce. This reserve is not available for distribution to Shareholders .

Annual Growth of Company's Profit

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

2005 2006 2007 2008 2009

BT 4288/DTT

To the ShareholdersArab Reinsurance Company S.A.L. (Inter-Arab Company)Beirut, Lebanon

We have audited the accompanying financial statements of Arab Reinsurance Company S.A.L.(Inter-Arab Company), which comprise thestatement of financial position as at December 31, 2009, and the statement of income, statement of comprehensive income, statement of changesin equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes.Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.Auditor ’s ResponsibilityOur 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 comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.OpinionIn our opinion, the financial statements present fairly, in all material respects, the financial position of Arab Reinsurance Company S.A.L. (Inter-Arab Company) as of December 31, 2009, and its financial performance and its cash flows for the year then ended in accordance withInternational Financial Reporting Standards.

Beirut, LebanonMarch 26, 2010 Deloitte & Touche

Independent Auditor’s Report

Statement of Financial PositionArab Reinsurance Company SAL (Inter-Arab Company)December 31,

ASSETS Notes 2009 2008USD USD

Cash and cash equivalents 5 2,990,410 24,376,513 Bank term deposits, with an original maturity of more than 3 months 6 53,510,334 36,536,161 Investments in securities:

-Held to maturity 7 44,435,600 40,748,846 -Available for sale 7 13,441,510 15,978,235

Reinsurance assets:-Reinsurance recoverable on outstanding claims 8 12,410,000 16,000,000-Receivables arising from reinsurance contracts 9 7,085,961 8,426,199 -Accounts retained by ceding companies 10 19,818,174 20,224,326 - Regularization debit accounts 376,787 -

Prepayments and other assets 11 135,574 108,415 Property and equipment 12 3,699,623 3,537,286Total Assets 157,903,973 165,935,981

LIABILITIESTechnical Provisions:

-Unearned premium 13 12,615,000 16,715,000-Outstanding claims 13 49,760,000 52,500,000

Reinsurance contract liabilities:-Payables arising from reinsurance contracts 5,771,448 4,130,337 -Accounts retained on outward reinsurance business 14 12,605,381 12,178,189 -Regularization credit accounts - 574,036

Accrued liabilities and other credit balances 15 2,103,611 3,319,784Total Liabilities 82,855,440 89,417,346

EQUITYCapital 22 50,000,000 50,000,000Capital reserve 20 9,154,216 8,200,591 General reserve 4,500,000 4,500,000Cumulative change in fair value of available-for-sale securities 7 (1,963,213 ) (832,384)Retained earnings 8,696,803 5,114,183 Comprehensive income of the year 20 4,660,727 9,536,245 Total equity 75,048,533 76,518,635

Total Liabilities and Equity 157,903,973 165,935,981

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Statement of Income Year Ended December 31,

Notes 2009 2008USD USD

Inward premium 62,563,821 65,005,573

Premium ceded to reinsurance (15,298,425) (15,940,521)

Net retained premium 47,265,396 49,065,052

Net change in provision for unearned premium 4,100,000 (1,500,000)

Commission income from outward business 4,415,128 5,102,407

Gross reinsurance income 55,780,524 52,667,459

Net interest income from reserves retained by cedants 313,684 273,924

Net loss in exchange from technical operations (285,798) (80,525)

Total reinsurance revenues 16 55,808,410 52,860,858

Claims incurred 50,837,056 35,283,010

Outward reinsurance share (13,954,300) (10,812,973)

Net claims incurred 36,882,756 24,470,037

Net change in provision for outstanding claims 850,000 6,000,000

Inward premium acquisition costs 17,776,446 19,362,522

Reinsurance share of general and administrative expenses 19 2,435,914 2,454,311

Total reinsurance expenses 16 57,945,116 52,286,870

Net reinsurance (loss)/income 16 (2,136,706) 573,988

Provisions for bad and doubtful debts & debts written off 9 (228) (1,334,174)

Net Investment income 17 6,585,021 9,031,489

Other income 18 1,054,416 2,123,660

Net loss in exchange from operations (64,958) (162,260)

General and administrative expenses from operations 19 (695,846) (646,448)

Profit before income tax 4,741,699 9,586,255

Income tax 15 (80,972) (50,010)

Net profit for the year 20 4,660,727 9,536,245Other comprehensive income

Net change in fair value of available-for-sale securities (1,130,829) (2,091,777)

Total other comprehensive income (1,130,829) (2,091,777)

Comprehensive income for the year 3,529,898 7,444,468

Arab Reinsurance Company SAL (Inter-Arab Company)Se

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Statement of Changes in EquityArab Reinsurance Company SAL (Inter-Arab Company)

CapitalCapital Reserve

GeneralReserve

Cumulative Change in Fair

Value of Available-For-

SalesSecurities

RetainedEarnings

Comprehensive Income for the

Year Total

USD USD USD USD USD USD USD

Balance, January 1, 2008 50,000,000 7,355,876 4,500,000 1,259,393 5,011,744 8,447,154 76,574,167

Transfer of 2007 profit - - - - 8,447,154 (8,447,154) -

Appropriation of 2007 profit:

-Transfer to capital reserve - 844,715 - - (844,715) - -

-Dividends paid - - - - (7,500,000) - (7,500,000)

Comprehensive income for the year 2008 - - - (2,091,777) - 9,536,245 7,444,468

Balance, December 31, 2008 50,000,000 8,200,591 4,500,000 (832,384) 5,114,183 9,536,245 76,518,635

Transfer of 2008 profit - - - - 9,536,245 (9,536,245) -

Appropriation of 2008 profit:

-Transfer to capital reserve - 953,625 - - (953,625) - -

-Dividends paid - - - - (5,000,000) - (5,000,000)

Comprehensive income for the year 2009 (Note 20) - - - (1,130,829) - 4,660,727 3,529,898

Balance, December 31, 2009 50,000,000 9,154,216 4,500,000 (1,963,213) 8,696,803 4,660,727 75,048,533

Year Ended December 31, 2009

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Statement of Cash FlowsArab Reinsurance Company SAL (Inter-Arab Company)

Year Ended December 31

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Notes 2009 2008USD USD

Cash flows from operating activities:Net profit for the year 4,660,727 9,536,245

Adjustments to reconcile net profit for the year to net cash generated by operating activities:Amortization of discount on securities 7 (27,643) (30,482) Provision for bad and doubtful debts and debts written off 9 228 1,334,174

Reversal of deferred income - (1,358,753)

Provision for end-of-service indemnity - 44,000 Depreciation and amortization 11&12 158,094 91,675 Net Loss/(Gain) on sale of investments in securities 432,108 (1,398,201)Gain on sale of property and equipment (783) (2,276)Decrease in reinsurance recoverable on outstanding claims 3,590,000 -(Decrease)/increase in provision for unearned premium (4,100,000) 1,500,000 (Decrease)/increase in provision for outstanding claims (2,740,000) 6,000,000 Decrease/(increase) in receivables arising from reinsurance contracts 1,340,010 (1,306,252)Decrease/(increase) in accounts retained by ceding companies 406,152 (3,205,632)(Increase)/decrease in prepayments and other assets (37,956) 17,919 Decrease/(increase) in accrued interest receivable on investments 16,120 (186,938) Increase in payables arising from reinsurance contracts 1,641,111 987,375 Decrease in regularization credit accounts (574,036) (265,333)Increase in regularization debit accounts (376,787) -Increase in accounts retained on outward reinsurance business 427,192 1,632,715 Decrease in accrued liabilities and other credit balances (468,478) (282,561)Payments of end-of-service indemnity (38,342) (137,510)

Net cash generated by operating activities 4,307,717 12,970,165 Cash flows from investing activities:

(Increase)/decrease in bank term deposits, with an original maturity of more than three months (16,974,173) 7,317,140Acquisition of investments in securities 7 (9,798,135) (13,747,301)Proceeds from sale of property and equipment 833 3,000Proceeds from sale of investment in securities 7 7,096,692 4,391,380 Purchase of property and equipment 12 (309,684) (19,209)Addition to deferred charges 11 - (869)

Net cash used in investing activities (19,984,467) (2,055,859)Cash flows from financing activities:

Payment of dividends (5,709,353) (6,595,829)Net cash used in financing activities (5,709,353) (6,595,829) Net (decrease) /increase in cash and cash equivalents (21,386,103) 4,318,477Cash and cash equivalents - Beginning of year 24,376,513 20,058,036 Cash and cash equivalents - End of year 2,990,410 24,376,513

Notes To The Financial StatementsArab Reinsurance Company SAL (Inter-Arab Company)


1. ESTABLISHMENT AND OBJECTIVE OF THE COMPANYThe Company was established and licensed by a Special Presidential Decree Number 2933 on March 11, 1972 as a Lebanese joint-stock company (Inter-Arab Company) tocarry out all reinsurance and investments activities and was registered in the Commercial Register of Beirut - Lebanon under commercial registration Number 26233.

2. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDSIn the current year, the Company has adopted the new and revised standards and interpretations issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to the Company’s operations and effective for annual reporting periods beginning on January 1, 2009. The adoption of these new and revised Standards and Interpretations did not have any significant impact on the Company’s financial statements or changes to the Company’s accounting policies.In addition, and as of the date of authorization of these financial statements, certain standards and interpretations were in issue but not yet effective. Management anticipatesthat the adoption of these Standards and Interpretations in the related future periods will have no material financial impact on the financial statements of the Company.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESStatement of Compliance:The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS).Basis of Preparation:The financial statements have been prepared on the historical cost basis, except certain available-for-sale of financial instruments.The financial statements are presented in U.S. Dollars which is the reporting currency of the Company and the primary currency of the economic environment in which the Company operates (functional currency).Assets and liabilities are grouped according to their nature and are listed in an approximate order that reflects their relative liquidity. The principal accounting policies adopted are set out below:A. Cash and Cash Equivalents:Cash and cash equivalents comprise bank current accounts and term bank deposits with original maturities of less than 3 months from the date of placement.B. Investment Securities:Investment securities are initially measured at fair value plus incremental direct transaction costs, and are subsequently measured depending on their classification as either held-to-maturity or available-for-sale.Held-to-Maturity Investment Securities:Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Company has the positive intention and ability to hold to maturity, and which are not designated at fair value through profit or loss or available-for-sale. Held-to-maturity investments are carried at amortized cost.Any sale or reclassification of a significant amount of held-to-maturity investments not close to their maturity would result in the reclassification of all held-to-maturity investments as available-for-sale, and prevent the Company from classifying investment securities as held-to-maturity for the current and the following two financial years.Held-to-maturity investment securities are carried at their amortized cost less impairment loss, if any.



Available-for-Sale Investment Securities:Available-for-sale investments are non-derivative financial assets that are either designated as such or are not designated as another category of financial assets. Available-

for-sale investments are carried at fair value. Unrealized gains or losses arising from changes in fair value are recognized directly in equity until the investment is derecognized or determined to be impaired at which time the cumulative changes previously recorded in equity are recognized in statement of comprehensive income.

The determination of fair values of financial instruments traded in active markets is based on quoted market prices. For financial instruments where there is no quoted price,and where fair value is not available the instrument is kept at cost less impairment loss, if any.

C. Technical Provisions:The Company computes its technical provisions for reinsurance operations retained for its own account as follows:Provision for Unearned PremiumThe provision for unearned premium includes premiums received for risks that have not yet expired at the statement of financial position date. Generally, the risk is released over the term of the contract and is recognized as premium income.The Company changed the method of the computation of unearned premium in conformity with the line of reinsurance and the nature of the reinsurance contracts concluded. No provision is taken on the inward treaties that follow “clean cut system”. Provision for Outstanding ClaimsThis provision is calculated on the basis of the most recent statements that are provided by the ceding companies.Provision for Losses Incurred But Not Reported (IBNR)This provision is estimated by the Company’s management taking into consideration the extent of response of ceding companies in sending the outstandingclaims, the Company’s previous experience in this respect and other relevant factors. This provision is included in the financial statements within the “provisionfor outstanding claims”.

D. Foreign Currencies:Transactions in currencies other than the U.S. Dollars are translated into US Dollars at the rates of exchange prevailing at the dates of the transactions. At yearend, monetary assets and liabilities denominated in such currencies are retranslated into US Dollars at the rates of exchange prevailing at the statement offinancial position date. Gains and losses on exchange are booked in the statement of comprehensive income.E. Receivables Arising from Reinsurance Contracts:Receivables are carried at anticipated realizable value. Doubtful debts are estimated based on the revision of all balances at the end of the year.

F. Software Cost:Cost of computer software is amortized over a period of 3 years.

G. Property and Equipment:Property and equipment are stated at historical cost net of accumulated depreciation and impairment loss, if any. Cost is depreciated using the straight-linemethod over the estimated useful lives of these assets as follows:

Annual Depreciation RateFurniture 8%Equipment 20%Building and apartment 2%



H. Recognition of Revenue and Expenses:Premium earnedPremium earned is recognized in income over the term of the reinsurance contract to which it relates on a pro-rata basis. Unearned premium represents the portion of netpremium relating to the unexpired period of coverage after the statement of financial position date. The change in the provision for unearned premium is recognized in thestatement of comprehensive income.

Claims incurred and provision for outstanding claimsClaims comprising amounts paid during the year and payable to contract holders and third parties at the end of the year, incurred but not reported claims and related lossadjustment expenses, net of salvage and other recoveries, are charged to income as incurred.

Inward premium acquisition costsCommissions paid to insurance companies incurred in relation to the acquisition and renewal of contracts are amortized over the terms of the re-contracts to which they relateas premiums are earned.

Commissions earnedCommissions earned from outward reinsurance business are recognized at the time of recognition of the related premiums.

Reinsurance cededReinsurance ceded and claim recoveries under outward reinsurance treaties are recognized in the same period as the related premiums and claims.

Investment IncomeInvestment income mainly comprises interest, dividend income, and realized capital gains or losses on sale of investments. Financial income is stated net of direct charges. Interest income is recognized in the statement of comprehensive income on an accrual basis. Interest includes interest earned on bank deposits and debt securities. Dividend income is recognized when it is declared. Realized gains and losses on investments are calculated as the difference between net sales proceeds and the carrying value of investments. Fair value gains and losses on investments disposed of which were previously recognized in equity are transferred to the statement of comprehensive income. The discounts earned on the acquisition of the investment securities are amortized over the terms of the investment securities and recorded net of the related interest earned.

Rental IncomeRental income arising from operating leases of leased property is recognized on a straight-line basis over the term of the lease.



I. Provision for End-of-Service Indemnity:The Company provides for employees’ end-of-service indemnities in accordance with the related internal employment National Social Security Fund regulations or in accordance with the terms and conditions of the contracts. The Company settles end-of-service indemnity contributions to the National Social Security Fund on the basis of 8 percent of the employees’ benefits. However, upon completion of twenty years of service or upon termination of employment and for those employees wishing to settle their account with the Fund, the related indemnities are computed on the basis of last salary paid times the number of years of service. Differences between indemnities due and contributions already paid are settled to the Fund at that time. In this connection, the Company follows the policy of accruing for the indicated differences on a current and undiscounted basis and are recorded to the provision for end-of-service indemnity account.The Company has also provided for end-of-service indemnities for employees that are not registered to the National Social Security Fund, the related indemnities arecomputed on the basis of last salary paid times the number of years of service.

J. Income Tax:Income tax is computed at 15% of profit that is calculated on the basis of 5% of inward premiums generated in Lebanon and other operating income, in accordance with thelocal requirements .

K. Impairment of Financial Assets:Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at each statement of financial position date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the asset, the estimated future cash flows of the investment have been impacted.

Impairment losses on assets carried at amortized cost are measured as the difference between the carrying amount of the financial assets and the present value of estimated future cash flows discounted at the original effective interest rate. Losses are recognized in profit or loss and reduce the carrying amount of the asset to its estimated recoverable amount. If, in a subsequent period, the amount of the impairment loss decreases, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

In respect of available-for-sale investment securities, the previously accumulated losses recorded under equity are recognized in profit or loss in case of impairment lossessubstantiated by a prolonged decline in fair value of the investment securities. Any increase in fair value subsequent to an impairment loss is not recognized in profit or lossfor available-for-sale equity securities. Any increase in fair value subsequent to an impairment loss is recognized in profit or loss for available-for-sale debt securities.



4. CRITICAL ACCOUNTING JUDGMENTS AND USE OF ESTIMATESIn the application of the accounting policies described in Note 3, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revisedif the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods .Key Sources of Estimation Uncertainty:The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the statement of financial position date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Impairment of reinsurance receivables:The recoverable amount of reinsurance receivables is estimated when there is indication of incomplete collectibility of these receivables. The determination of impairment requires management to assess the solvency and financial liquidity of insurance and reinsurance companies. Moreover, percentages of collections are reviewed based on the historical information of the Company and the detailed studies conducted during the year. The difference between the recoverable amounts and the book value is recognized as an expense in the statement of comprehensive income. The difference between the actual amounts collected in future periods and those previously estimated is recognized in the statement of comprehensive income at the date of collection.

The ultimate liability arising from claims made under insurance contracts:The estimate of ultimate liability arising from the claims made under insurance contracts is the Company’s most critical accounting estimate. There are sources ofuncertainty that need to be considered in the estimate of the liability that the Company will eventually pay for such claims. Estimates have to be made both for expectedultimate cost of claims reported at the statement of financial position date and for the expected ultimate cost of claims incurred but not reported (“IBNR”) at the statement offinancial position date. Liabilities for unpaid reported claims are estimated using the input of assessments for individual cases reported to the Company and the managementestimates based on past claims settlement trends for the claims incurred but not reported. Claim liabilities are also tested for adequacy as of the statement of financialposition date and the related provisions are adjusted accordingly .

December 31,2009 2008USD USD

Short term bank deposits 801,186 22,923,404Banks Current Accounts 2,182,046 1,416,259 Accrued interest receivable 7,178 36,850

2,990,410 24,376,513

Short term bank deposits are mainly denominated in U.S. Dollars and placed at banks with an original maturity of less than 3 months. These deposits earned an averageinterest rate about 5.25% per annum for the year 2009 (6% for the year 2008) .

5. CASH AND CASH EQUIVALENTSThis caption is composed of the following:

Notes To The Financial Statements


Bank term deposits 52,953,147 36,198,899

Accrued interest receivable 557,187 337,262 53,510,334 36,536,161

Arab Reinsurance Company SAL (Inter-Arab Company)


6. BANK TERM DEPOSITS, WITH AN ORIGNIAL MATURITY OF MORE THAN 3 MONTHSThis caption is composed of the following:

These deposits are denominated in U.S. Dollars and placed at banks for a period of more than 3 months but not exceeding one year from the placement date. These deposits earned an average interest rate of about 5.25% per annum for the year 2009 (6% for the year 2008) .

7. INVESTMENTS IN SECURITIESThis caption consists of the following: December 31,

2009 2008USD USD

Held-to-Maturity:Debt securities - Lebanese commercial banks 3,141,549 3,138,700 Lebanese Treasury Bonds 36,011,364 36,670,370 Foreign debt securities 4,342,513 -

43,495,426 39,809,070 Accrued interest receivable 940,174 939,776

44,435,600 40,748,846

Available-for-Sale:Quoted Equities 6,015,952 6,426,159 Unquoted Equities 7,366,808 9,476,808

13,382,760 15,902,967 Accrued interest receivable 58,750 75,268

13,441,510 15,978,235


Year Ended December 31, 2009Held-to-maturity securities are denominated in U.S. Dollars and are detailed as follows:

December 31, 2009Security Average Interest Rate Cost Unamortized Discount Amortized Cost

% USD USD USDDebt Securities - Lebanese Commercial Banks maturity as follows :

July 2010 5.000 150,000 - 150,000 December 2012 7.625 3,000,000 (8,451) 2,991,549

3,150,000 (8,451) 3,141,549Lebanese Treasury Bonds maturity as follows:

May 2011 7.875 7,000,000 (9,203) 6,990,797March 2013 9.125 4,000,000 (11,811) 3,988,189 May 2014 9.000 2,000,000 - 2,000,000January 2015 5.875 500,000 - 500,000 April 2015 10.000 2,000,000 (21,302) 1,978,698 August 2015 8.500 750,000 (3,488) 746,512 January 2016 8.500 13,000,000 (57,832) 12,942,168March 2017 9.000 760,000 - 760,000April 2021 8.250 5,000,000 - 5,000,000December 2024 7.000 1,105,000 - 1,105,000

36,115,000 (103,636) 36,011,364Foreign Treasury Bonds maturity as follows :

CBB International Sukuk - June 2014 6.274 750,000 - 750,000TDIC Finance - July 2014 6.500 550,000 (1,563) 548,437Rasgas - September 2014 5.500 250,000 (443) 249,557Dubai Sukuk - October 2014 6.396 1,000,000 2,644 1,002,644 Mubadala Development Company -May 2019 7.625 1,000,000 (6,741) 993,259Dolphin Energy - June 2019 5.888 200,000 - 200,000Qatar Notes - January 2020 5.250 400,000 (956) 399,044Qatar Notes - January 2040 6.400 200,000 (428) 199,572

4,350,000 (7,487) 4,342,51343,615,000 (119,574) 43,495,426

Accrued interest receivable 940,174 44,435,600

The fair value of the held-to-maturity securities amounted to USD47.69million as of December 31, 2009



December 31, 2008Security Average Interest Rate Cost Unamortized Discount Amortized Cost

% USD USD USDLebanese Banks Debt Securities maturity as follows:

July 2010 5.000 150,000 - 150,000 December 2012 7.625 3,000,000 (11,300) 2,988,700

3,150,000 (11,300) 3,138,700Lebanese Treasury Bonds maturity as follows:

October 2009 10.250 3,050,000 (1,200) 3,048,800May 2011 7.875 7,000,000 (15,800) 6,984,200March 2013 9.125 4,000,000 (15,745) 6,984,255May 2014 9.000 2,000,000 - 2,000,000April 2015 10.000 2,000,000 (25,300) 1,974,700August 2015 8.500 750,000 (4,185) 745,815 January 2016 8.500 13,000,000 (67,400) 12,932,600 April 2021 8.250 5,000,000 - 5,000,000

36,800,000 (129,630) 36,670,37039,950,000 (140,930) 39,809,070

Accrued interest receivable 939,77640,748,846

The fair value of the held-to-maturity securities amounted to USD 39.98million as of December 31, 2008.

2009 2008USD USD

Beginning balance 39,809,070 35,053,150 Additions 6,707,513 6,725,438

Redemption (3,048,800) (2,000,000) Amortized discounts 27,643 30,482 Ending balance 43,495,426 39,809,070

The movement of held-to-maturity investments is summarized as follows:


2009 2008USD USD

Beginning of year 15,902,967 11,966,960 Additions 3,090,622 7,021,862 Disposals (4,480,000) (1,103,718)Net change in fair value (1,130,829) (1,981,237) End of year 13,382,760 15,902,967

2009 2008USD USD

Balance, beginning of year - Net unrealized (loss)/gain (832,384) 1,259,393 Realized gain on disposal of investments - (110,540)Unrealized net loss of fair value on remaining investments (1,130,829) (1,981,237) Balance, end of year - Net unrealized loss (1,963,213) (832,384)



The available-for-sale investment are distributed as follows:

The movement in available-for-sale investments is summarized as follows:

Disposals of available-for-sale investments resulted in a net loss in the amount of USD432,108 for the year 2009 (net gain of USD1,398,201 for the year 2008) as included under net investment income in the statement of comprehensive income (Note 17) .The movement of the cumulative change in fair value of available-for-sale securities is summarized as follows:

Carrying Amount Cumulative Change in Fair Value

December 31, December 31,2009 2008 2009 2008USD USD USD USD

Quoted EquitiesEquity securities – Lebanese Commercial Banks 3,667,888 2,959,909 1,282,658 574,679Citigroup, Inc. 232,400 469,700 (1,693,100) (1,455,800)Egyptian Gulf Bank - Egypt 160,664 71,550 (21,320) (24,812)Bonds – Blue City Investment Ltd - 1,000,000 - -Bonds – Daar International Sukuk 1,955,000 1,925,000 (45,000) (75,000)

6,015,952 6,426,159 (476,762) (980,933)Unquoted Equities at CostSolidere International – UAE 1,448,538 1,448,538 148,549 148,549Ajman Real Estate Holding company - UAE 3,150,000 5,000,000 - -Bishopsgate Tower Investment – UK 2,028,270 2,028,270 - -Real Estate funds - Open Silicon – USA 715,000 1,000,000 (285,000) -Arab Insurance Institute – Syria 25,000 - (1,350,000) -

7,366,808 9,476,808 (1,486,451) 148,54913,382,760 15,902,967 (1,963,213) (832,384)


December 31,2009 2008 USD USD

Marine branches 40,000 -

Non-Marine branches 12,370,000 16,000,000 Total 12,410,000 16,000,000

2009 2008USD % USD %

Up to 3 months 3,347,454 38 3,863,183 38 From 3 to 6 months 2,719,970 31 2,578,475 25 From 6 months to 1 year 1,764,195 20 2,173,308 21 Over 1 year 1,054,342 11 1,611,233 16

8,885,961 100 10,226,199 100Provision for doubtful balances (1,800,000) (1,800,000)

7,085,961 8,426,199


Premiums retained:Marine branches 1,516,750 1,744,544Non-Marine branches 7,651,922 7,823,087Life branch 8,825 9,962

9,177,497 9,577,593Losses retained:Marine branches 3,194,271 3,188,222Non-Marine branches 7,445,726 7,456,956Life branch 680 1,555

10,640,677 10,646,73319,818,174 20,224,326


Year Ended December 31, 20098. REINSURANCE RECOVERABLE ON OUTSTANDING CLAIMSThis caption is composed of the following:

9. RECEIVABLES ARISING FROM REINSURANCE CONTRACTSThis caption represents receivables from insurance and reinsurance companies. Receivables arising from reinsurance contracts are non-interest bearing. The ageing ofthese accounts receivable is summarized as follows:

10. ACCOUNTS RETAINED BY CEDING COMPANIESThis caption consists of accounts retained by ceding insurance and reinsurance companies on inward reinsurance business as follows:

The movement of the provision for doubtful debts is summarized as follows:

During the year 2009, the Company wrote-off accounts receivable in the amount of USD228 recorded directly to the statement of comprehensive income (USD34,174 in the year 2008) .

2009 2008USD USD

Beginning of year 1,800,000 500,000Additions - 1,300,000End of year 1,800,000 1,800,000


December 31,2009 2008

USD USDPrepaid expenses 64,171 58,500Other debit balances 71,403 39,118Deferred charges (net of amortization) - 10,797

135,574 108,415



11. PREPAYMENTS AND OTHER ASSETSThis caption consists of the following:

Deferred charges consist mainly of the value of computer software net of accumulated amortization which cost amounted to USD263,878 as at December 31,2009 and 2008 fully amortized during year 2009 .

12. PROPERTY AND EQUIPMENTThis caption consists of the following: Land Building &Apartment LeaseholdImprovements Furniture Library Equipment Total

USD USD USD USD USD USD USDCost:Balance, January 1, 2008 1,500,000 2,387,095 - 336,934 21,653 185,162 4,430,844Additions - - - 13,571 17 5,621 19,209Disposals - - - (3,290) - - (3,290)Balance, December 31, 2008 1,500,000 2,387,095 - 347,215 21,670 190,783 4,446,763Additions - - 225,000 59,139 570 24,975 309,684 Disposals - - - (1,400) - (200) (1,600)Balance, December 31, 2009 1,500,000 2,387,095 225,000 404,954 22,240 215,558 4,754,8

Accumulated Depreciation:Balance, January 1, 2008 - 390,294 - 260,834 21,653 163,898 836,679Additions - 47,742 - 19,897 17 7,708 75,364Disposals - - - (2,566) - - (2,566)Balance, December 31, 2008 - 438,036 - 278,165 21,670 171,606 909,477Additions - 47,742 68,063 20,767 570 10,155 147,297Disposals - - - (1,400) - (150) (1,550)Balance, December 31, 2009 - 485,778 68,063 297,532 22,240 181,611 1,055,224

Net Book Value:Balance, December 31, 2009 1,500,000 1,901,317 156,937 107,422 - 33,947 3,699,623 Balance, December 31, 2008 1,500,000 1,949,059 - 69,050 - 19,177 3,537,286



Provision for unearned premium:Marine branches 2,315,000 3,873,000Non-Marine branches 10,297,000 12,731,000Life branch 3,000 111,000

12,615,000 16,715,000


Provision for outstanding claims:Marine branches 11,750,000 11,100,000Non-Marine branches 37,880,000 41,200,000Life branch 130,000 200,000

49,760,000 52,500,000



13. TECHNICAL PROVISIONSTechnical provisions consist of the following:

Starting year 2009 and according to the decision taken during the board meeting No.132 held on May 30, 2009 the Company changed the method of the computation ofthe unearned premium in conformity with the line of reinsurance and the nature of the reinsurance contracts concluded (year 2008 the provision for unearned premiumwas computed on the basis of 40% of the net inward premiums of all branches except for Marine Branch (Cargo) which was computed on the basis of 25% of the relatedpremiums) .

Provision for outstanding claims as at December 31, 2009 and 2008 includes USD6,500,000 respectively representing provision for losses incurred but not reported(IBNR)14. ACCOUNTS RETAINED ON OUTWARD REINSURANCE BUSINESSThis caption consists of accounts retained by the Company in favor of the reinsurers on the outward reinsurance operations as follows:


Premiums retained:Non-Marine branches 3,030,994 3,212,617

Losses retained:Non-Marine branches 9,574,387 8,965,572

12,605,381 12,178,189



15. ACCRUED LIABILITIES AND OTHER CREDIT BALANCESThis account consists of the following: December 31,

2009 2008USD USD

Tax accruals 122,152 230,264Provision for end-of-service indemnity 126,977 165,319Accrued charges 39,604 181,734Income tax payable 60,000 93,000Due to a related party 1,504,778 1,496,042Miscellaneous credit balances 250,100 1,153,425

2,103,611 3,319,784

The Company is subject to income tax at the rate of 15% of taxable profits that are determined at a fixed rate of 5% of the inward premium generated from the Lebanese market and other operating income. The tax on profits for the years 2009 and 2008 amounted to USD 60,000 and USD 93,000 respectively. Tax withheld on interest income from movable capital in the amount of USD13,944 for the year 2009 (USD 71,406 in 2008) is reflected under general and administrative expenses in the statement of comprehensive income.

During the year in 2009, the Company’s tax returns for the years 2006 and 2007 were subject to final examination and tax assessment by the tax authorities. This tax review resulted in additional tax liability not finalized till the date of the issuance of these financial statements .



16.(a) INCOME AND EXPENSES OF REINSURANCE BRANCHES

Marine NON Marine Life Total

2009 2008 2009 2008 2009 2008 2009 2008

USD USD USD USD USD USD USD USD

Inward premium 10,250,277 13,219,445 52,027,526 51,508,242 286,018 277,886 62,563,821 65,005,573

Less: Premium ceded to reinsurance (351,885) (261,158) (14,946,540) (15,679,363) - - (15,298,425 ) (15,940,521)

Net retained premium 9,898,392 12,958,287 37,080,986 35,828,879 286,018 277,886 47,265,396 49,065,052

Net Provision for unearned premium at beginning of year 3,873,000 3,357,000 12,731,000 11,718,000 111,000 140,000 16,715,000 15,215,000

Net Provision for unearned premium at end of year (2,315,000) (3,873,000) (10,297,000 ) (12,731,000) (3,000) (111,000) (12,615,000) (16,715,000)

Net Change in provision for unearned premium 1,558,000 (516,000) 2,434,000 (1,013,000) 108,000 29,000 (4,100,000) (1,500,000)

Commission income from outward business - - 4,415,128 5,102,407 - - 4,415,128 5,102,407

Gross reinsurance income 11,456,392 12,442,278 43,930,114 39,918,286 394,018 306,886 55,780,524 52,667,459

Net interest income from reserves retained by cedants 98,968 117,995 214,325 155,520 391 409 313,684 273,924

Net loss in exchange from technical operations (99,078) 46,911 (186,720 ) (127,436) - - (285,798) (80,525)

Total Reinsurance Revenues 11,456,282 12,607,193 43,957,719 39,946,370 394,409 307,295 55,808,410 52,860,858

Claims incurred 6,669,757 5,805,630 44,027,087 29,336,732 140,212 140,648 50,837,056 35,283,010

Less: Outward reinsurance share - (45,249) (13,954,300 ) (10,767,724) - - (13,954,300) (10,812,973)

Net claims incurred 6,669,757 5,760,381 30,072,787 18,569,008 140,212 140,648 36,882,756 24,470,037

Net Provision for outstanding claims at beginning of year (11,100,000) (10,850,000) (25,200,000) (19,300,000) (200,000) (350,000) (36,500,000) (30,500,000)

Net Provision for outstanding claims at end of year 11,710,000 11,100,000 25,510,000 25,200,000 130,000 200,000 37,350,000 36,500,000

Net Change in provision for outstanding claims 610,000 250,000 310,000 5,900,000 (70,000) (150,000) 850,000 6,000,000

Inward premium acquisition costs 3,389,865 4,368,248 14,333,201 14,927,934 53,380 66,340 17,776,446 19,362,522

Reinsurance share of general and administrative expenses 399,093 499,034 2,025,685 1,944,787 11,136 10,490 2,435,914 2,454,311

Total Reinsurance Expenses 11,068,715 10,877,663 46,741,673 41,341,729 134,728 67,478 57,945,116 52,286,870

Net reinsurance (loss) / income 387,567 1,729,530 (2,783,954) (1,395,359) 259,681 239,817 (2,136,706) 573,988


2009 2008USD USD

Arab Gulf area countries 27,498,021 32,928,156 Middle East Arab countries 10,735,377 10,845,307 Arab African countries 10,832,824 12,145,537 Non-Arab countries 13,497,599 9,086,573 Total premiums 62,563,821 65,005,573

2009 2008USD USD

Interest income from deposits at banks 3,170,003 3,834,082Interest income from investments in debt securities 3,847,126 3,799,206(Loss) /Gain on disposal of available-for-sale securities (432,108) 1,398,201

6,585,021 9,031,489



16.(b) GEOGRAPHICAL DISTRIBUTION OF PREMIUMSPremiums are distributed geographically as follows:

2009 2008USD USD

Management fees 538,209 581,561Rent income 142,803 117,546Reversal of deferred income - 1,358,753Reversal of long outstanding payable 103,058 -Gain on sale of fixed assets 783 2,276Other income 269,563 63,524

1,054,416 2,123,660

17. NET INVESTMENT INCOMEThis caption consists of the following:

18. OTHER INCOMEThis caption consists of the following:


2009 2008USD USD

Salaries and related charges 1,670,550 1,603,669Depreciation and amortization 158,094 91,675Directors and audit committee attendance fees and travel expenses 480,634 237,148Property tax and other taxes 100,142 204,809Miscellaneous operating expenses 722,340 963,458

3,131,760 3,100,759

2009 2008USD USD

Reinsurance share 2,435,914 2,454,311 Operations share 695,846 646,448

3,131,760 3,100,759



19. GENERAL AND ADMINISTRATIVE EXPENSESThis caption consists of the following:

The general and administrative expenses are distributed as follows:



21. RELATED PARTIESPart of the reinsurance business is carried out with related insurance and reinsurance companies that are members in the board of directors of the company at an arm’s lengthbasis and in agreement with the Company’s policies. The remuneration paid to the board of directors and chairman amounted to USD480,000 for the year 2009 (Note 19) .

22. CAPITALThe Company’s capital is composed of 50 million nominal shares of par value USD1 each, fully paid.

23. STATEMENT OF CASH FLOWS AND NON-CASH ITEMSThe unrealized change in fair value on available-for-sale securities, amounting to USD1,130,829 for the year 2009 (USD1,981,237 for the year 2008), has been excluded inthe statement of cash flows from the investing activities for the year ended December 31, 2009 .

24. CONTINGENCIESA legal action was brought against the Company by one of its shareholders requesting the suspension of subscription in the third bracket of capital increase of USD10million. In this respect, a decision was pronounced in favor of the Company by the court of first instance and the court of appeal in Beirut that rebutted the request of the plaintiff. On the other hand, the court did not take a decision in connection with the plaintiff’s claim of the right to subscribe in the second bracket of capital increase in which it was not able to participate claiming that it did not receive the invitation to subscribe.There are two lawsuits in front of the work counsel against the Company raised by two ex-employees, one of them is claiming an amount of USD72,144 as end-of-service indemnity. According to the Company’s legal advisor, the outcome of these lawsuits depends on whether the work counsel will take into consideration the Decree No. 3775 on August 10, 1972 which exempts the Company from legal and financial obligations, and thus allows it to apply labor regulations that contradicts the Lebanese labor law.The tax returns for the years 2008 and 2009 remain subject to examination and final assessment by the tax authorities, the result of which cannot be determined at the present .

The proposed appropriation of profits, except for the transfer to capital reserve, is subject to the approval of the General Assembly of the Company’s Shareholders which will be held to approve the financial statements for the year ended December 31, 2009.According to Article 60 of the Company’s by-laws, 10% of the annual net profit should be transferred to a capital reserve until the total of this reserve becomes equal to theCompany’s capital. This reserve includes the legal reserve required according to Article 165 of the Lebanese Code of Commerce. This reserve is not available fordistribution to shareholders .

USDTransfer to capital reserve at 10% 466,073Distribution of dividends at 5% of paid up capital as of December 31, 2009 as a first allotment according to the company’s by-laws 2,500,000Distribution of dividends at 5% of paid up capital as of December 31, 2009 as an additional allotment according to the company’s by-laws 2,500,000Transfer from the retained earnings (805,346)Net profit for the year 2009 4,660,727

20. APPROPRIATION OF PROFITSThe General assembly of shareholders decided in its meeting held on May 30, 2009 the distribution of dividends in the amount of USD5million to its shareholders. This distribution of dividends is subject to 10% withholding tax.The Board of Directors, in its meeting held on March 26, 2010, decided to appropriate the net profit for the year 2009, subject to the approval of the General Assembly ofthe Company’s Shareholders, as follows :



Receivables Arising from Reinsurance Contracts

Payables Arising from Reinsurance Contracts Inward Premium Claims Incurred

USD % USD % USD % USD %Currencies of the Gulf area 1,615,367 18 3,930,434 68 23,813,407 38 24,944,358 49Currencies of Arab Africa countries 1,470,155 17 1,361,299 24 8,721,097 7 5,302,139 11Currencies of Middle East countries 728,533 8 125,704 2 4,019,038 14 5,242,212 10Non-Arab currencies 1,521,548 17 65,091 1 12,818,343 20 7,719,689 15U.S. Dollars 3,550,358 40 288,920 5 13,191,936 21 7,628,658 15

8,885,961 100 5,771,448 100 62,563,821 100 50,837,056 100

C. Credit Risk:The Company’s credit risk is primarily attributable to its bank deposits, debt securities and receivables. The amounts presented in the statement of financial position are stated at net realizable value, estimated by the Company’s management based on prior experience and current economic environment.The Company’s debt securities are diversified as reflected in Note 7. The Company’s bank deposits are placed at the ratio of 99% with non-resident branches of local banks and 1% with local banks as of December 31, 2009. Accordingly, the related credit risk is spread over sovereign risk and banks with good reputation.The Company has no significant concentration of risk in receivables, with exposure spread over a large number of insurance and reinsurance companies and brokers .

D. Interest Rate Risk:The Company’s interest rate risk arises from the possibility that changes in market interest rates will affect the value of interest earning assets and interest bearing liabilities and the value of the interests.The Company’s interest rate risk is limited to the banks’ accounts subject to variable interest rate and the accounts retained by the ceding companies on inward and outwardreinsurance business which are subject mainly to fixed interest rate .

E. Liquidity Risk:Liquidity risk is the risk that the Company will be unable to meet its net funding requirements. Liquidity risk can be caused by market disruptions or credit downgrades, which may cause certain sources of funding to dry up immediately. To mitigate this risk, management has diversified funding sources and assets are managed with a liquidity approach, maintaining a healthy balance of cash, cash equivalents and readily marketable securities.Maturities of the Company’s assets and liabilities are managed in a way to keep and maintain an adequate liquidity ratio .

25. FINANCIAL INSTRUMENTS - FAIR VALUE AND MANAGEMENT OF RISKA. Fair Values of Financial Assets and Liabilities:Except as disclosed in Note 7 above, the carrying book values of financial assets and liabilities are not materially different from their fair values applicable at the statement of financial position .

B. Currency Risk:Currency risk arises from the possibility that changes in currency exchange rates will affect the value of financial assets and liabilities, whereby, the Company does not hedge its currency exposure by means of hedging instruments.The table shown below summarizes the Company’s components of major exposures to foreign currency rate risk for the year ended December 31, 2009 :



F. Reinsurance Risk:In line with other reinsurance companies, and in order to minimize financial exposure arising from large claims, the company, in the normal course of business, enters into arrangements with other parties for reinsurance purposes.To minimize its exposure to significant losses from reinsurer insolvencies, the Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities or economic characteristics of the reinsurers.The Company enters into reinsurance contracts that provide for the required capacities that fit its risk profiles at competitive costs, while optimizing its retention levels through yearly as if exercises, taking into consideration financial resources such as equity capital and free reserves, portfolio size and liquid assets. Its retention levels fit the empirical rules and general benchmarks, and most importantly, ensure that the company’s solvency ratio remains high.Outward reinsurance contracts do not relieve the company from obligations to its insurers. The Company remains liable to its insurers for the portion reinsured to the extentthat any reinsurer does not meet the obligations assumed under the reinsurance agreements .

26. CAPITAL RISK MANAGEMENTThe Company manages its capital to ensure the Company’s ability to continue as a going concern, while maximizing the return through the optimization of the liabilities and equity balance.The Company manages the capital structure and makes the necessary revisions, in light of changes in the economics of the business and the market conditions, and the risk characteristics of operations and underlying assets. The Company’s overall strategy remains unchanged from the previous year.The capital structure of the Company consists of equity. Equity comprises issued capital, reserves, cumulative change in fair value of available-for-sale securities and retained earnings.

The Company monitors capital on the basis of the ratio of total liabilities to capital. The ratio as at December 31, 2009 and 2008 was as follows :


Total liabilities 82,855,440 89,417,346Total equity 75,048,533 76,518,635Ratio 110% 117%

27. APPROVAL OF THE FINANCIAL STATEMENTSThe Company’s board of directors in its meeting held on March 26, 2010 approved the issue of the financial statements for the year ended December 31, 2009 .

Shareholders

Lebanon

Bahrain

SyriaEgyptSaudi Arabia

Algeria UAETunisia YemenMorocco Sudan

Iraq

Jordan

Libya Kuwait

Saudi Arabia• Sheikh Khaldoun Barakat• Red Sea Insurance Co.• Trade Union Insurance Co.• SAUDI FOR TRADING EST/SATRA• Gulf Cooperation Insurance Co.

Shareholders

Lebanon• La Phenicienne Co. d'Assurance• General Insurance Company for the Near East –

Al Ittihad Al Watani• United Commercial Assurance• Al Nisr Insurance Co.• Arabia Insurance Co.• Banque Misr Liban• Middle East Assurance & Reinsurance Co. (Mearco)• Amana Insurance Co.•Tannous Feghali

Shareholders

Libya• Libya Insurance Co. SPL

Shareholders

Syria• Syrian Insurance Co.

Shareholders

Egypt• Misr Insurance Company• National Insurance Company of Egypt

Shareholders

Iraq• Iraq Reinsurance Co.• National Insurance Co.• Iraq Insurance Co.

Shareholders

Kuwait• Gulf Insurance Co.• Kuwait Investment Authority• Al Ahleia Insurance Co.

Shareholders

Algeria• Compagnie Centrale de Reassurance

Shareholders

Morocco• Societe Centrale de Reassurance• La Mutuelle Agricole Marocaine D'Assurances (MAMDA)

Shareholders

Tunis• Societe Tunisienne de Reassurance• Societe Tunisienne d'Assurance et de Reassurance• COMAR Assurances• Groupe des Assurances de Tunisie• ASTREE Compangnie d’Assurance et de Reassurance• Mutuelle Generale d'Assurances• Ministere de Finance - Direction des Assurances• Cie. d'Assurance et de Reassurance Tuniso-Europeenne

Shareholders

Jordan• AL MANARA Insurance• Holy Land Insurance Co.• Arab Union Int’l Insurance Co.• The United Insurance Co.• Middle East Insurance Co.• Jerusalem Insurance Co.• Arab Bank• Jordan Insurance Co.• The National Ahlia Insurance Co.

Shareholders

United Arab Emirates• Al Ain Ahlia Insurance Co. PSC

• Sharjah Insurance Co. PSC

Shareholders

Bahrain• Bahrain National Holding Co.

Shareholders

Sudan• The National Reinsurance Co.

Shareholders

Yemen• Yemen Insurance & Reinsurance Co.

Shareholders

Documents

Arab Re Annual Report Reports/AnnualReport2… · For the Financial Year Ended December 31,2009. Report of the Board of Directors. DearShareholders, The Board of Directors of Arab