YOUR TRUSTED INSURER · in Transaction Banking, beginning with Citibank in 1984, and held a variety of senior positions with Citibank, working in different countries worldwide. Hani

2016Annual Report

YOUR TRUSTED INSURER

Head Office

P.O.Box 5282, 4th FloorChamber of Commerce BuildingManama, Kingdom of BahrainTel: +973 17225 860Fax: +973 17224 870email: [email protected]: www.alahlia.com

C.R. No. 5091

Branches

• Sitra(Sitra Mall, Ground Floor)• Salmabad• Riffa(Wadi al Sail)• Riffa(Military Consumers Association)• Arad

Principal BankersAhli United Bank B.S.C.

ActuaryLux Actuaries

Shares registrarBahrain Bourse

AuditorsBDO

Contents page

Profile 1Mission and Philosophy 2Financial Highlights 3Board of Directors Profile 5Management Profile 9Board of Directors Report 11Corporate Governance Report 16Financial Results 2016 28

His Royal HighnessPrince Khalifa Bin Salman Al Khalifa

The Prime Minister ofThe Kingdom of Bahrain

His MajestyKing Hamad Bin

Isa Al Khalifa

The King ofThe Kingdom of Bahrain

His Royal HighnessPrince Salman Bin Hamad Al Khalifa

The Crown PrinceDeputy Supreme Commander and

First Deputy Prime Minister

1 AL AHLIA INSURANCE ANNUAL REPORT 2016

About AlAhliaAs one of the leading and oldest local insurance companies in the market, AlAhlia is committed to providing insurance protection to all individuals and properties in Bahrain. Today the Company is a preferred insurer in the market as it has a cover for every business need and a scheme suited for every individual. It has already embarked on a mission to innovate and introduce new products on a regular basis to suit the changing needs of the society.

AlAhlia is the only Company in the market servicing aviation industry since long time and the first Company in Bahrain to devise and introduce innovative insurance schemes for Asian Expatriates living in Bahrain. The Company is also one of the leading medical insurers in the market.

AlAhlia Insurance established in 1976, is a public shareholding company listed in the Bahrain Stock Exchange. Endowed with a composite license, the Company is carrying out both Life and General Insurance businesses in Bahrain.

Profile

VisionTo be the most trusted Insurance Company.

MissionAlAhlia strives to offer increased security for the lives and lifestyles of people living in Bahrain, through constant training and adaptation of its employees to the latest developments in the industry, thus being able to serve in the most professional manner.

The Company believes that customer satisfaction is the only true reflection of the success of its corporate strategies. This underlying philosophy inspired the Company in developing a committed, professional team, which operates in a dynamic and invigorating work environment.

“Focusing on principles that have proved success in the past, we harness resources to meet the future challenges”

Philosophy“Change” is inherent to nature. A positive approach to change is the adaptability to and receptivity of new ideas, which vastly depends on human interaction with the environment. The insurance industry, today being part of every one’s daily life, is witnessing rapid evolution that revolves around the ever-changing needs of its customers.

Our commitment to offer protection and assurance for the future to all our clients shall remain unchanged yet with increased vigor and an array of offerings under the strong guiding principles of Solidarity Group Holding.

2AL AHLIA INSURANCE ANNUAL REPORT 2016


Gross Premium

Underwritting

Net Profit

13.53BD Millions

1.39BD Millions

.32BD Millions

Financial Highlights


Net Earned Premiun

Earning Per Share

Technical Reserves

8.51BD Millions

0.51Fils

7.00BD Millions

Financial Highlights


Board of Directors

Dr. Osama AlbaharnaChairman

Dr. Albaharna holds a Doctorate (Ph.D.) in Computer Engineering from Imperial College in the UK and Masters and Bachelor Degrees in Computer Engineering from McGill University in Canada. He has wide experience in management, operations, and marketing of service oriented organizations in Bahrain and Qatar. Dr. Albaharna is a much sought-after IT and e-Commerce consultant in the region and has worked as Project Manager on many strategic IT projects.

He is the Executive Director of Continental Office Equipment & Systems W.L.L. and Taqi Mohammed Albaharna Trading Establishment in Bahrain, Continental Group in Qatar, and Continental Managed Print Services in Dubai. Dr. Albaharna was first elected to the Board in March 2003. He was re-elected to the Board in March 2015 and again elected as a member of the Board in the Extra Ordinary General Meeting held on the 15th January 2017.

Mr. Abdulellah Al QassimiVice Chairman

Mr. Al Qassimi holds a Bachelor’s degree in Civil Engineering and Master’s Degree in Health Facility Planning both from the University of London. He is currently on the Board of a number of organizations: Tamkeen (Labour Fund), Ithmaar Bank, Naseej, Bahrain Development Bank, Solidarity Group Holding, Durrat Resort Management Company.

Prior to his retirement from public sector, Mr. Al Qassimi’s most recent position was Chief Executive of Tamkeen. Previously he was the Asst. Undersecretary for Training at the Ministry of Labour and Social Affairs, in addition to Director of Engineering and Maintenance at the Ministry of Health. He also founded the Savings and Lending Co-operative Society at the Ministry of Health. He was formerly Chairman of Bahrain Training Institute (BTI), and was a board member of Bahrain Society of Engineers. Mr. Abdullelah was elected as a member of the Board in the Ordinary General Meeting held on the 25th December 2016 and was re-elected in Extra Ordinary General Meeting held on the 15th January 2017.

Mr. Abbas Al RadhiDirector

Mr. Radhi is a Certified Public Accountant (CPA) USA, Certified Arab Accountant, MBA Financing & Business Law from University of Maine, USA, M.S.B Accounting from Husson University, Maine, USA and Bachelor’s Degree in Accounting from Kuwait University. Certified Director having completed the INSEAD - Directors Program. He has over 30 years of experience in Public Accounting, auditing major public & private sector organizations in the GCC and internationally (including the US and UK). His key positions include Board Member and Member of Executive Committee of Solidarity Group Holding B.S.C (Closed), Board Member and Chairman of Audit & Risk and Corporate Governance Committees and Member of Nomination & Remuneration Committee of Bahrain Four Mills Co., Bahrain, Board Member and Member of the Audit Committee of Naseej B.S.C. (c), Bahrain, Board Member of Al Areen Palace and Spa, Bahrain, Board Member and Chairman of Financing Committee of Supreme Council of Vocational Training, Bahrain.

He has been a Non-Independent & Non-Executive Director at Al Ahlia Insurance Company B.S.C. since December 25, 2016

Mr. Sharif Ahmadi Director

Mr. Ahmadi holds a Higher National Diploma in Electrical and Electronic Engineering at Derby Lonsdale College of Higher Education.

Mr. Ahmadi is currently playing an active role as Executive Director of Bahrain Family Leisure Company and National Institute for Industrial Training. He is also the Managing Director of Dar Al Khaleej for Trading & Contracting and Paper Arts Products Company, in addition to Joint Managing Director of Bahrain Waste Treatment Company.

Mr. Sharif was elected to the Board in the Extra Ordinary General Meeting held on the 15th January 2017


Dr. Ali Al WazzaniDirector

Dr. Al Wazzani holds a Doctorate Degree (Ph.D) in Marketing & Communications, Masters in Business Administration and an Associate Member of the Chartered Insurance Institute of UK, London. He has more than 18 years of extensive experience in the Insurance industry and Banking. Dr. Ali is a Board Member of Solidarity Saudi Takaful Company and Member of its Executive Committee. He is the Board Member of INJAZ, Jordan, Board Member of Jordan Insurance Federation (JOIF), Chairman of Jordan Medical Insurance Association, Member – Board of trustees of UNRWA Educational Sciences & Art University, Jordan, Member - Management Committee, Jordan Motor Accidents Compensation Fund, in addition to his current post as Chief Executive Officer, Solidarity Jordan.

Dr. Al Wazzani was elected as a Board member in the Extra Ordinary General Meeting held on the 15th January 2017.

Mr. Hani Ali Rashed Al MaskatiDirector

Mr. Al Maskati served as a Director of Zawya Limited. Hani has over 30 years of experience in Transaction Banking, beginning with Citibank in 1984, and held a variety of senior positions with Citibank, working in different countries worldwide. Hani left Citibank in 2000 to co-found Zawya in London, www.zawya.com , the Arab world’s first business and finance portal. In 2001, Hani founded Cash Management Matters (CMM),www.cashmanagementmatters.com. With 50% of the top regional banks as its customers, CMM is at the forefront of developments in the transaction banking area, being the first specialized company in the Middle East with the express purpose of assisting Financial Institutions in harnessing the power of Internet Delivery to create market sensitive solutions for their corporate customers. In 2009, Hani founded Cash & Trade Magazine (CTM), www.cashandtrademagazine.com and in 2012 launched the Cash & Trade Academy. Hani holds an MBA from the University of Hull, England.

Member of the SMEs Banking Reform Committee – Kingdom of Bahrain, 2005 Member of the Arbitration Committee – Bahrain Stock Exchange (BSE), 2005 and 2008 (two terms).Board member of BLU Loyalty www.bluloyalty.com Mr. Hani Ali Rashed Al Maskati has been an Independent & Non-Executive Director at Al Ahlia Insurance Company B.S.C. since January 15, 2017

Mr. Venkatesan MuniswamyDirector

Mr. Venkatesan Muniswamy is a Chartered Accountant from the Institute of Chartered Accounts of India, AIII from the Insurance Institute of India, and Graduate in Arts in the University of Madras. He is a Fellow member of the Institute of Chartered Accountants of India and an Associate member of the Insurance, Institute of India.

Mr. Muniswamy is a highly accomplished and dynamic professional with 30 years of experience in Insurance and with wide experience in finance, accounts, asset management, cost control, strategic & business planning, budgeting & forecasting, mergers & acquisition, organizational structuring & reorganization and field organization support. Mr. Venkatesan Muniswamy is the Vice-Chairman of Solid Ventures WLL. He is a Director and Member of the Audit Committee of Solidarity Jordan, he holds directorship in Solidarity Takafol SA, Luxembourg, Al Somood & Al Moazara companies, Mulkiyat Investment Co, Jordan, in addition to his current post as Chief Financial Officer, Solidarity Group Holding B.S.C. (C).

Mr. Venkatesan was nominated to the Board as a DICO representative as from 21st December 2016, replacing Mr. A.V. Babu and thereafter continued to be the Board member as a nominee of the Solidarity Group Holding elected in the Extra Ordinary General Meeting held on the 15th January 2017.

Mr. Sofyan Adnan KhatibChairman

Dr. Osama AlbaharnaDeputy Chairman

Mr. Adel Hassan AlaaliDirector

Mr. Sofyan Adnan KhatibChairman - (Board member until 25.12.2016)

Mr. Khatib holds a Bachelor of Arts specialized in Business Administration & Hotel Administration. He has 30 years of professional management & investment experience. Mr. Khatib also holds directorships in DAMAC Group – Dubai, Al Jazeira Services Company SAOG – Oman, Al Anwar Ceramic Tile Company SAOG – Oman. He was appointed by the Board in June 2004 as the director and re-elected to the Board at the AGM in March 2015 as a director and was the Chairman of the Board until his resignation on the 25th December 2016.

Dr. Osama Taqi AlBaharnaDeputy Chairman

Dr. AlBaharna holds a Doctorate (Ph. D.) in Computer Engineering from Imperial College in UK and Masters and Bachelor Degrees in Computer Engineering from Canada. He has wide experience in management, operations, and marketing of service oriented organizations in Bahrain and Qatar. Dr. Albaharna is a much sought-after IT and eCommerce consultant in the region and has worked as Project Manager on many strategic IT projects. He is the Executive Director of Continental Office Equipment & Systems W.L.L. and Taqi Mohammed Albaharna Trading Establishment. Dr. Albaharna was first elected to the Board in March 2003. He was last re-elected to the Board in March 2012.

Mr. Adel Hassan AlAaliDirector - (Board member until 15.01.2017)

Mr. AlAali holds a Bachelor in Science from North Staffordshire University of UK and Bachelor in Science from Aston University of UK. Mr. AlAali has extensive business experience as Director and Board member in various industrial companies.

Mr. AlAali holds directorship in Al Aali House Limited, Al Aali Management Limited, Bahrain Bulk Handling, Bahrain Bulk Trade, Bahrain Precast Concrete, Haji Hassan Group W.L.L, Sky Properties Limited, United Cement Company, United Gulf Asphalt, United Precast Concrete – Dubai and United Precast Concrete – Qatar.

Mr. AlAali was first elected to the Board in March 2000. He was re-elected to the Board in March 2015 and continued as a Board member until the 15th January 2017

Board of Directors


Mr. A.V. BabuDirector

Mr. Farooq Mahmood ArjomandDirector

Mr. A.V. BabuDirector - (Board member until 21.12.2016)

Mr. Babu holds a Bachelor’s degree in Science and he is a Fellow member of the Institute of Chartered Accountants of India. He has wide and varied experience in the field of management and investment analysis.

He has earlier served as Board member from 2006 to 2009, 2012 to 2015 and was re-elected to the Board in March 2015 and was a Board member representing DICO until the 21st December 2016

Mr. Farooq Mahmood ArjomandDirector - (Board member until 25.12.2016)

Mr. Farooq graduated in Business Management from the Seattle Pacific University, Washington - Seattle. He started his career as a banker with HSBC, in 1984. He is one of the founding member of Amlak Finance & Emaar Properties. He is the Chairman of the Arjomand Group that consists of various Hotels, Textiles, Travels, Hospitality and Technology services companies. Arjomand Group has offices in Europe, Far East & GCC countries. He is also a Director and Vice-Chairman of the Executive Committee of Amlak Finance, UAE. Mr. Arjomand joined the Board of AlAhlia in March 2012. r from 2006 to 2009. He was last re-elected to the Board in March 2012



Management Profile

S.VeerapandianActing General Manager(Starting 16.10.2016)

Mr. Veerapandian joined Al Ahlia Insurance Company in June 2002 as Deputy Genaral Manager and was elevated to the current position in October 2016.

He holds a Master’s Degree in Arts and is an Associate Member of the Insurance Institute of India(AIII).

Mr. Veerapandian is an accomplished Insurance veteran with over 35 years of successful experience in the industry. His experience includes a vast portfolio ranging from underwriting & claims, reinsurance, sales & marketing to general administration & managment. Additional areas of expertise include strategy, vision & business planning, financial budgeting & managment, public relations managment, profitability and cost analysis, product feasibility, concept and design, contract negotiations, strategic alliances, business developments & expansion planning.


Fadi KhatibGeneral Manager(until 13.10.2016)

Mr. Fadi Khatib joined Al Ahlia Insurance Company in December 2012 with extensive experience in Insurance Industry in the GCC & Middle East. He was previously the Manager of Bahrain Branch of Arabia Insurance Company

Mr. Khatib is an Associate of the Chartered Insurance Institute of London, Chartered Insurance Practitioner (UK) and holds Master in Business Marketing & Management.

He resigned as General Manager in October 2016.

Raja SrinivasanFinance Manager

Mr. Raja Srinivasan holds a graduation in Science and a Master’s in Financial Management from Jamnalal Bajaj Institute of Management Studies, Mumbai in India. He is also an Associate member of the Insurance Institute of India. Mr. Raja has over 31 years’ experience in the insurance industry heading the finance function of Life and General Insurance operations of both Direct and Reinsurance Companies in India and the Middle East. He joined AAIC in June 2016.


The Board of Directors is pleased to present the 40th Annual Report of Al Ahlia Insurance Company B.S.C.(“the Company” or “AAIC”) to the valued shareholders with the statement of financial position and statement of profit or loss and other comprehensive income for the financial year ended 31st December 2016.

This report coincides with the 40th anniversary of the founding of our Company. Since its establishment in 1976, AAIC has achieved a steady growth in its business with the established principle of prudent underwriting with satisfactory customer service.

With the acquisition of 71.46% by Solidarity Group Holding BSC (c), Bahrain towards the end of the year 2016 and a proposed merger with Solidarity General Takaful BSC(c) slated to take place in the financial year 2017, AAIC is poised to be the biggest takaful Company in the region and one of the leading top-tier insurance players in Bahrain.

Taking into consideration the saturated local market, consolidation has become a necessity in order to create larger and stronger financial institutions capable of competing locally and offer a unique customer experience.

Insurance OperationsContinuing with the positive trend demonstrated during the earlier years, the Company achieved an increase of 5% (BD 94K) in the underwriting profit in 2016, from BD 1.98 million to BD 2.07 million, excluding management expenses. This could be achieved by better control on loss ratios and prudent review of claims.

Despite the tough market & economic conditions, the Company managed to achieve a significant increase of 23.8% in the gross premiums with a sizeable increase in new business.

InvestmentsThe unfavorable investment climate continued during the year under operation. However, the Company saw an increase in the fair value of its investments to the tune of BD 700k. Despite the adverse conditions, the Company also managed to earn an investment income of BD 457K thereby limiting the net investment loss for the year to BD 393k as against the loss of BD 1.2 million in 2015, after considering impairments. The Company’s investment fair value reserves were BD 1.8 million as compared to BD 1.2 million in 2015.

Company Performance for the year 2016 (in BHD ‘000s)

2016 2015Gross Written Premium 13,529 10,926Net Earned Premium 8,510 5,528Net Claims Incurred (6,637) (4,063)Management Expense (613) (550)Provision on Insurance & Reinsurance Receivable (67) (11)Net Commission Income 203 518Underwriting profit 1,396 1,422Investment & Other loss (393) (1,220)General & Administrative Expense (971) (825)Net Profit/(Loss) 32 (623)

Board of Directors’ Report


Results of the various insurance segments before deducting general and administration expenses were as follows:(in BHD ‘000s)

2016 2015Fire, General Accident & Engineering 428 503Marine & Aviation 116 141Life and Medical (41) 45Motor 960 744Provision on insurance and reinsurance receivables (67) (11)Total 1,396 1,422

Outlook

At the background of the industry’s outlook set for a modest growth in the current year, with a long market presence and experience of 40 years for the Company, the Board is optimistic in improving the operational performance during the year. The Board also looks forward to an improvement in the investment climate during the current year thereby stabilizing the investment performance of the Company.

The growth opportunity in global takaful and insurance markets is very promising. The Solidarity Group’s ever expanding footprints coupled with AM Best B++ ratings of the underlying operations will give the Company an ideal platform to exploit those opportunities in order to enhance and advance our overall stakeholders interest and values in the coming years.

Thanks and Appreciation

On behalf of the shareholders, the Board of Directors would like to extend their sincere thanks and appreciation to His Majesty the King Hamad Bin Isa Al Khalifa, The King of the Kingdom of Bahrain, His Royal Highness Prince Shaikh Khalifa Bin Salman Al Khalifa, the Prime Minister and His Royal Highness Prince Shaikh Salman Bin Hamad Al Khalifa, The Crown Prince and Deputy Commander-in-Chief of the Bahrain Defense Force and First Deputy Prime Minister of the Kingdom of Bahrain.

The Board would also like to thank HE the Minister of Industry and Commerce and HE The Governor of Central Bank of Bahrain for their continuous support to the insurance industry in Bahrain and all Ministers, the private sector establishments and individuals who dealt with our company and placed their trust and confidence.

We also extend our thanks to all the distinguished shareholders for their trust and continuous encouragement to the Board. We thank the intermediaries, insurance and reinsurance Companies for their co-operation and support. Our Appreciation and sincere thanks go to the management and employees for their loyalty, dedication and hard work.

THE BOARD OF DIRECTORS28th February 2017

Board of Directors’ Report Contd


Personal Accident InsuranceWe will take care of you and your family in case of any unfortunate accident to your self. Our comprehensive Personal Accident Insurance Plan will provide you with financial support.

Medical InsuranceWe have a number of medical insurance schemes to choose from. Plans are available for Individuals, Families and for Groups or Employees of companies.

Engineering InsuranceWhether you are a Contractor, Engineer, Project Manager, Consultant or a factory owner, we have the right cover you need.

Property InsuranceWe provide the right insurance cover for your valuable property.Under the Personal Lines products section you can get the best insurance protection for your house, building and contents.

Gross Premium 2016BD Millions 13.529

Underwriting 2016BD Millions 1.397

14AL AHLIA INSURANCE ANNUAL REPORT 2016 14AL AHLIA INSURANCE ANNUAL REPORT 2016

Al AhliaInsuranceTeam Spirit



Corporate Governance Report1. Corporate Governance Report

The Company endeavors to benchmark its corporate governance policies against established best practice. The Board shall from time to time adopt core values and standards which clearly sets out the behaviors expected of staff in their dealings with shareholders, customers, colleagues, brokers and other stakeholders of the Company. One of the core values communicated within the Company is a belief that the highest standards of integrity is essential to the conduct of business. The governance of the Company is and shall remain under constant review, in order to enhance compliance levels according to international standards and best practice. The direct responsibility of the Board of Directors shall be to ensure to be in line with policies of regulatory authorities and statutory requirements.

2. Communication Strategy

The Company has a clear policy in relation to its communication with its stakeholders, shareholders, customers, governing bodies, regulators and society. Shareholders are invited by the Chairman of the Board to attend the Annual General Meeting in the presence of the Chairman and other directors and the External Auditors, who are available to answer any questions raised by the shareholders or media representatives with regard to the operations and performance of the Company. Additionally the Company is cognizant and fully aware of its regulatory and statutory obligations regarding dissemination of information to its stakeholders. Without prejudice to the disclosure standards, guidelines on key persons and other requirements of the relevant statutory bodies, financial and non-financial information is provided by the Company on all events that merit announcement, either on the Company website www.alahlia.com or through local newspapers or other means of communication. The financials and annual reports of the Company are made available on the Company’s website.

3. Shareholders Information

AAIC’s shares are listed on the Bahrain Bourse. The Company has issued 61,886,633 equity shares, each with a face value of 100 fils. All shares are fully paid.

Major ShareholdersNationality Number of shares Percentage of

holding interestSolidarity Group Holding B.S.C (closed) Bahrain 44,226,357 71.46%Taqi Mohamed Al Baharna Bahrain 3,560,160 5.75%Others Various 14,100,116 22.79%

61,886,633 100%

Distribution Schedule of each class of EquityNumber of

shareholdersNumber of shares Percentage of total

outstanding sharesLess than 1% 2,198 12,830,325 21%More than 1% up to less than 5% 1 1,269,791 2%More than 5% 2 47,786,517 77%

61,886,633 100%


Directors’ Roles and Responsibilities

4. Board of Directors information

Board composition

The Board composition is based on the Company’s Memorandum and Articles of Association. The Board was reconstituted on the 25th December 2016 and again was reconstituted on 15th January 2017 in the Extra-Ordinary General Assembly meeting. Currently the Board consists of seven members. The Board represents a mix of high-level professional skills and expertise. Furthermore, in compliance with the corporate governance requirements the Board Committees consist members with adequate professional background and experience. The Board has three independent non-executive directors. The Board periodically reviews its composition and the contribution of its Directors and Committees.

The appointment of Directors is subject to prior approval of the Central Bank of Bahrain (CBB). The classification of ‘Executive’ Directors, ‘Non-Executive’ Directors and Independent non-executive’ Directors is as per the definition stipulated by the CBB.

The Board is supported by the Board Secretary who provides professional and administrative support to the general assembly, the Board and its Committees.

Directors’ roles and responsibilities

The Company is governed through its Board of Directors. The Board’s main roles are to create value to shareholders, to provide entrepreneurial leadership of the Company, to approve Company’s strategic objectives and to ensure that the necessary financial and other resources are made available to enable them to meet those objectives. The Board, which meets at least four times a year, has a schedule of matters reserved for its approval. The specific responsibilities reserved to the Board include:

• Reviewing Company strategy and approving the annual budget for revenues and capital expenditure;• Reviewing operational and financial performance;• Approving acquisitions and divestments;• Reviewing the Company’s systems of financial control and risk management;• Ensuring that appropriate management development and succession plans are in place;• Approving appointments to the Board and the Company Secretary; and• Ensuring that a satisfactory dialogue takes place with shareholders

Director’s induction and professional development

The Board is required to be up to date with current business, insurance industry, regulatory and legislative developments and trends that will affect the Company’s business operations. Immediately after appointment, the Company will provide a formal induction, if necessary. Meetings will also be arranged with Executive Management and the Company’s Heads of Departments. This will foster a better understanding of the business environment and markets in which the Company operates. A continuing awareness program is essential and it may take many different forms, through distribution of publications, workshops, presentations at Board meetings and attendance at conferences encompassing topics on directorship, business, insurance industry and regulatory developments. Board and committees evaluation The Board performs a self-evaluation on an annual basis. The Board annually reviews its Charter and its own effectiveness; and initiates suitable steps for any amendments. The Board will also review self-evaluations of the individual Board members and the Board Committees and consider appropriately any recommendations arising out of such evaluation.

Whistle blowing policy

The Board has approved the whistle blowing policy with designated officials to whom the employees can approach. The policy provides adequate protection to the employees for any reports in good faith. The Board’s Audit Committee oversees this policy.

Corporate Governance Report contd.


Code of conduct

The Board has approved a Code of Conduct for the Company’s Directors. The Board has also approved a Code of Ethics for the Executive Management and employees. These codes outline areas of conflict of interest, confidentiality and the responsibilities of signatories to adhere to best practices.

Key persons trading policy

The Company has established a “Key Persons Trading Policy” to ensure that insiders are aware of the legal and administrative requirements regarding holding and trading of AAIC shares, with the primary objective of preventing abuse of inside information. “Key Persons” are defined to include the Directors, Executive Management, designated employees and any person or firm connected to the identified key persons. Responsibility for ensuring compliance with the Key Persons Trading Policy is entrusted to the Secretary to the Board.

The policy covers the regulation of Bahrain Bourse relating to key persons.

Conflict of interest policy

The Board has also approved the policy for dealing with situations involving ‘Conflict of Interest’ of Directors. In the event of the Board or its Committees considering any issues involving Conflict of Interest of Directors, the decisions are taken by the full Board /Committees. The concerned Director abstains from the discussion /voting process. These events are recorded in the Board / Committees proceedings. The Directors are required to inform the entire Board of Conflicts of Interest (potential or otherwise) in their activities with, and commitments to, other organizations as they arise and abstain from voting on the matter. This disclosure includes all material facts in the case of a contract or transaction involving the Director.

Corporate social responsibility

AAIC’s contribution towards the well-being of the community is an integral part of its corporate role. This corporate social responsibility is translated by the Company, though in a limited way through annual donations to the region’s cultural events, socio economic program of the state etc.

5. Disclosures relating to Board of Directors

Director’s profile

1. Dr. Osama Albaharna – Chairman

Dr. Albaharna holds a Doctorate (Ph.D.) in Computer Engineering from Imperial College in the UK and Masters and Bachelor Degrees in Computer Engineering from McGill University in Canada. He has wide experience in management, operations, and marketing of service oriented organizations in Bahrain and Qatar. Dr. Albaharna is a much sought-after IT and e-Commerce consultant in the region and has worked as Project Manager on many strategic IT projects.

He is the Executive Director of Continental Office Equipment & Systems W.L.L. and Taqi Mohammed Albaharna Trading Establishment in Bahrain, Continental Group in Qatar, and Continental Managed Print Services in Dubai. Dr. Albaharna was first elected to the Board in March 2003. He was re-elected to the Board in March 2015 and again elected as a member of the Board in the Extra Ordinary General Meeting held on the 15th January 2017.

2. Abdullelah Ebrahim Al Qassimi – Vice Chairman

Mr. Al Qassimi holds a Bachelor’s degree in Civil Engineering and Master’s Degree in Health Facility Planning both from the University of London. He is currently on the Board of a number of organizations: Tamkeen (Labour Fund), Ithmaar Bank, Naseej, Bahrain Development Bank, Solidarity Group Holding, Durrat Resort Management Company.



Prior to his retirement from public sector, Mr. Al Qassimi’s most recent position was Chief Executive of Tamkeen. Previously he was the Asst. Undersecretary for Training at the Ministry of Labour and Social Affairs, in addition to Director of Engineering and Maintenance at the Ministry of Health. He also founded the Savings and Lending Co-operative Society at the Ministry of Health. He was formerly Chairman of Bahrain Training Institute (BTI), and was a board member of Bahrain Society of Engineers. Mr. Abdullelah was elected as a member of the Board in the Ordinary General Meeting held on the 25th December 2016 and was re-elected in Extra Ordinary General Meeting held on the 15th January 2017.

3. Abbas Al Radhi

Mr. Radhi is a Certified Public Accountant (CPA) USA, Certified Arab Accountant, MBA Financing & Business Law from University of Maine, USA, M.S.B Accounting from Husson University, Maine, USA and Bachelor’s Degree in Accounting from Kuwait University. Certified Director having completed the INSEAD - Directors Program. He has over 30 years of experience in Public Accounting, auditing major public & private sector organizations in the GCC and internationally (including the US and UK). His key positions include Board Member and Member of Executive Committee of Solidarity Group Holding B.S.C (Closed), Board Member and Chairman of Audit & Risk and Corporate Governance Committees and Member of Nomination & Remuneration Committee of Bahrain Flour Mills Co., Bahrain, Board Member and Member of the Audit Committee of Naseej B.S.C. (c), Bahrain, Board Member of Al Areen Palace and Spa, Bahrain, Board Member and Chairman of Financing Committee of Supreme Council of Vocational Training, Bahrain.

He has been a Non-Independent & Non-Executive Director at Al Ahlia Insurance Company B.S.C. since December 25, 2016

4. Sharif Mohamed Ahmadi

Mr. Ahmadi holds a Higher National Diploma in Electrical and Electronic Engineering at Derby Lonsdale College of Higher Education.

Mr. Ahmadi is currently playing an active role as Executive Director of Bahrain Family Leisure Company and National Institute for Industrial Training. He is also the Managing Director of Dar Al Khaleej for Trading & Contracting and Paper Arts Products Company, in addition to Joint Managing Director of Bahrain Waste Treatment Company.

Mr. Sharif was elected to the Board in the Extra Ordinary General Meeting held on the 15th January 2017

5. Hani Ali Rashed Al Maskati

Mr. Al Maskati served as a Director of Zawya Limited. Hani has over 30 years of experience in Transaction Banking, beginning with Citibank in 1984, and held a variety of senior positions with Citibank, working in different countries worldwide. Hani left Citibank in 2000 to co-found Zawya in London, www.zawya.com , the Arab world’s first business and finance portal. In 2001, Hani founded Cash Management Matters (CMM), www.cashmanagementmatters.com. With 50% of the top regional banks as its customers, CMM is at the forefront of developments in the transaction banking area, being the first specialized company in the Middle East with the express purpose of assisting Financial Institutions in harnessing the power of Internet Delivery to create market sensitive solutions for their corporate customers. In 2009, Hani founded Cash & Trade Magazine (CTM), www.cashandtrademagazine.com and in 2012 launched the Cash & Trade Academy. Hani holds an MBA from the University of Hull, England.

Member of the SMEs Banking Reform Committee – Kingdom of Bahrain, 2005 Member of the Arbitration Committee – Bahrain Stock Exchange (BSE), 2005 and 2008 (two terms).Board member of BLU Loyalty www.bluloyalty.com Mr. Hani Ali Rashed Al Maskati has been an Independent & Non-Executive Director at Al Ahlia Insurance Company B.S.C. since January 15, 2017



6. Venkatesan Muniswamy

Mr. Venkatesan Muniswamy is a Chartered Accountant from the Institute of Chartered Accounts of India, AIII from the Insurance Institute of India, and Graduate in Arts in the University of Madras. He is a Fellow member of the Institute of Chartered Accountants of India and an Associate member of the Insurance, Institute of India.

Mr. Muniswamy is a highly accomplished and dynamic professional with 30 years of experience in Insurance and with wide experience in finance, accounts, asset management, cost control, strategic & business planning, budgeting & forecasting, mergers & acquisition, organizational structuring & reorganization and field organization support. Mr. Venkatesan Muniswamy is the Vice-Chairman of Solid Ventures WLL. He is a Director and Member of the Audit Committee of Solidarity Jordan, he holds directorship in Solidarity Takafol SA, Luxembourg, Al Somood & Al Moazara companies, Mulkiyat Investment Co, Jordan, in addition to his current post as Chief Financial Officer, Solidarity Group Holding B.S.C. (C).

Mr. Venkatesan was nominated to the Board as a DICO representative as from 21st December 2016, replacing Mr. A.V. Babu and thereafter continued to be the Board member as a nominee of the Solidarity Group Holding elected in the Extra Ordinary General Meeting held on the 15th January 2017.

7. Dr. Ali Al Wazzani

Dr. Al Wazzani holds a Doctorate Degree (Ph.D) in Marketing & Communications, Masters in Business Administration and an Associate Member of the Chartered Insurance Institute of UK, London. He has more than 18 years of extensive experience in the Insurance industry and Banking. Dr. Ali is a Board Member of Solidarity Saudi Takaful Company and Member of its Executive Committee. He is the Board Member of INJAZ, Jordan, Board Member of Jordan Insurance Federation (JOIF), Chairman of Jordan Medical Insurance Association, Member – Board of trustees of UNRWA Educational Sciences & Art University, Jordan, Member - Management Committee, Jordan Motor Accidents Compensation Fund, in addition to his current post as Chief Executive Officer, Solidarity Jordan.

Dr. Al Wazzani was elected as a Board member in the Extra Ordinary General Meeting held on the 15th January 2017

8. Sofyan Adnan Khatib (Board member until 25.12.2016)

Mr. Khatib holds a Bachelor of Arts specialized in Business Administration & Hotel Administration. He has 30 years of professional management & investment experience. Mr. Khatib also holds directorships in DAMAC Group – Dubai, Al Jazeira Services Company SAOG – Oman, Al Anwar Ceramic Tile Company SAOG – Oman. He was appointed by the Board in June 2004 as the director and re-elected to the Board at the AGM in March 2015 as a director and was the Chairman of the Board until his resignation on the 25th December 2016.

9. Mr. Adel AlAali (Board member until 15.01.2017)

Mr. AlAali holds a Bachelor in Science from North Staffordshire University of UK and Bachelor in Science from Aston University of UK. Mr. AlAali has extensive business experience as Director and Board member in various industrial companies.

Mr. AlAali holds directorship in Al Aali House Limited, Al Aali Management Limited, Bahrain Bulk Handling, Bahrain Bulk Trade, Bahrain Precast Concrete, Haji Hassan Group W.L.L, Sky Properties Limited, United Cement Company, United Gulf Asphalt, United Precast Concrete – Dubai and United Precast Concrete – Qatar.

Mr. AlAali was first elected to the Board in March 2000. He was re-elected to the Board in March 2015 and continued as a Board member until the 15th January 2017



10. Mr. A.V.Babu (Board member until 21.12.2016)

Mr. Babu holds a Bachelor’s degree in Science and he is a Fellow member of the Institute of Chartered Accountants of India. He has wide and varied experience in the field of management and investment analysis.

He has earlier served as Board member from 2006 to 2009, 2012 to 2015 and was re-elected to the Board in March 2015 and was a Board member representing DICO until the 21st December 2016

11. Mr. Farooq Mahmood Arjomand (Board member until 25.12.2016)

Mr. Farooq graduated in Business Management from the Seattle Pacific University, Washington - Seattle. He started his career as a banker with HSBC, in 1984. He is one of the founding members of Amlak Finance & Emaar Properties. He is the Chairman of the Arjomand Group that consists of various hotels, textiles, travels, hospitality and Technology services companies. Arjomand Group has offices in Europe, Far East & GCC countries

He is also a Director and Vice-Chairman of the Executive Committee of Amlak Finance, UAE. Mr. Arjomand joined the Board of Al Ahlia in March 2012 and was re-elected to the Board in March 2015 and continued until his resignation on the 25th December 2016.

Director’s and related parties’ interests

The number of shares held by Directors as of 31 December 2016 was as follows:Name of Director Type of Shares 31 December 2016 31 December 2015Mr. Sofyan Al Khatib Ordinary - 206,289Dr. Osama Albaharna* Ordinary 242,527 242,527Mr. Adel Alaali* Ordinary 187,110 187,110

*Related Party. The premium earned and claims incurred from related parties respectively included BD 31,664 and BD 4,197 for the year ended 31st December 2016 against BD 50,114 of premium earned and BD 234,067 and claims incurred for the year ended 31st December 2015.

** Mr. Sofyan traded in the shares of the company during the financial year ended 31 December 2016.*** The General Manager and other members holding positions of approved status within the company do not hold any shares of the Company in their names or in the names of their families.



6. Board Meetings

As per the charter of the Board, the directors are required to meet at least four times in a given financial year to discharge its responsibilities effectively.

Board meetings and record of attendance

During the year 2016, the Board of Directors met seven times, and a record of the member’s attendance at the meetings is set below

Name 23-FEB 30-MAR 11-MAY 9-OCT 13-NOV 13-DEC 25-DEC AttendedDubai Bahrain Dubai Dubai Dubai Bahrain Bahrain1 Mr. Sofyan Adnan Khatib 52 Dr. Osama Albaharna 73 Mr. A.V.Babu 64 Mr. Adel AlAali 25 Mr. Farooq Mahmood Arjomand 56 Mr. Venkatesan Muniswamy** 17 Mr. Abdullelah Al Qassimi*** 18 Mr. Abbas Al Radhi*** 1

• *The directors resigned w.e.f 25th December, 2016• ** The nomination was swapped w.e.f 21st December, 2016• ***The directors were inducted w.e.f 25th December, 2016

Addendum: The Company takes a reference to the CBB’s observations made in the onsite Inspection Report of the Company for the FY 2015 and confirms that Mr. Sofyan Adnan AlKhatib and Mr. A.V. Babu were both present in theBoard meeting of the 25th September 2013, their attendance report which was otherwise stated incorrectly in the annual report of 2013.

7. Board Committees

Board committees are formed and their members are appointed by the Board of Directors at the beginning of each Board term. They are considered the high level link between the Board and the Executive Management. The objective of these committees is to assist the Board in monitoring the actual operations of the Company, by reviewing issues that are submitted by management to the Board and making recommendations to the Board for their final review. The Board reserves the right to form temporary committees and discontinue them from time to time and as it deems necessary. Further, the members of the Board are provided with copies of meeting minutes of the said committees, as required by the regulators. Board committees’ responsibilities, meetings and record of attendance

Reference the Company’s Ordinary General Meeting and the Board of Directors’ meeting held on the 25th December 2016, the re-constituted Committees were as under:

Executive Committee:

Mr. Abbas Al Radhi – ChairmanDr. Osama AlBaharna - MemberMr. Venkatesan Muniswamy – Member




Audit Committee:

Mr. Adel Hassan Al Aali – ChairmanMr. Abdulellah Al Qassimi – MemberMr. Abbas Al Radhi - Member

Nomination & Remuneration Committee:

Mr. Adel Hassan Al Aali – ChairmanDr. Osama AlBaharna – MemberMr. Venkatesan Muniswamy – Member

Corporate Governance Committee:

Mr. Abdulellah Al Qassimi

None of the above re-constituted committees met between the 25th December 2016 till the end of the Financial Year 2016.

The Board committees have been reconstituted again on 15th January 2017 immediately after reconstitution of Board in the Extra-Ordinary General Meeting held on 15th January 2017.

Executive Committee:

Mr. Abbas Al Radhi – ChairmanDr. Osama AlBaharna - MemberMr. Venkatesan Muniswamy – MemberDr. Ali Al Wazani - Member

Audit Committee:

Mr. Hani Al Maskati – ChairmanMr. Abdulellah Al Qassimi – MemberMr. Sharif Ahmadi - Member

Nomination, Remuneration & Governance Committee:

Mr. Sharif Ahmadi – ChairmanMr. Abbas Al Radhi – MemberMr. Hani Al Maskati – Member

Executive Committee

The Executive Committee has the following responsibilities:

• The development and recommendation of strategic plans for consideration by the Board that reflect the long-term objectives and priorities established by the Board;

• Implementation of the strategies and policies of the Company as determined by the Board;• Monitoring of the operational and financial results against plans and budgets;• Monitoring the quality and effectiveness of the investment process against objectives and guidelines; and• Prioritizing allocation of capital, technical and human resources.



Audit Committee

The Audit Committee has the following responsibilities:

• Reviewing the Company’s draft financial statements and interim results statement prior to Board approval and reviewing the external auditor’s detailed reports thereon;

• Reviewing the appropriateness of the Company’s accounting policies and other operational procedures;• Reviewing regularly the potential impact in the Company’s financial statements of certain matters such as

impairment of fixed asset values and proposed changes in International Financial Reporting Standards and International Accounting Standards applicable to the Company;

• Reviewing compliance of requirements specified in the Rulebook issued by the Central Bank of Bahrain;• Reviewing and approving the terms of engagement for the audit;• Reviewing an annual report on the Company’s systems of internal control and its effectiveness, reporting to

the Board on the results of the review and receiving regular updates on key risk areas of financial control; and

• Reviewing the internal audit functions terms of reference, its work program and quarterly reports on its work during the year.

Under its charter, the Audit Committee monitors the integrity of the Company’s financial statements and any formal announcements relating to the Company’s performance. The Committee is responsible for monitoring the effectiveness of the external audit and internal process. It is responsible for ensuring that an appropriate relationship between the Company and the external auditors is maintained. It also reviews annually the Company’s systems of internal control and the processes for monitoring and evaluating the risks facing the Company. The Committee reviews the effectiveness of the internal audit and is responsible for approving, upon the recommendation of the Chief Executive Officer, the appointment and termination of the internal auditors. The Committee reviews its charter and its effectiveness annually and recommends to the Board, any changes required as a result of the review. The Committee meets with the Directors and management, and as and when considered required with both the external and internal auditors. The internal audit function is outsourced to Moore Stephens, Bahrain who conduct their procedures as per the agreed terms of reference, and provide their periodic reports directly to the Audit Committee

Nomination and Remuneration Committee:

The Nomination and Remuneration Committee has the following responsibilities:

• Assist the Board of Directors in identifying and nominating individuals qualified to serve as Board and committee members of the Board.

• Recommend the remuneration and rewards policy for the Company and in particular, for the directors and senior management team, and lead the performance review of Board and committees

Details of the various committees and their respective activities in line with the respective Terms of Reference documents, previously restructured in the Board meeting held on 31st March 2015 that were in function until the 25th December 2016 along with the constitution, powers and the meeting details were as given below:

Audit Committee:

The Audit Committee was in charge of the audit function of the Company. The Committee reviewed the periodical financial statements and the statutory auditors’ reports on behalf of the Board. The internal auditor directly reported to the Audit Committee and their reports were reviewed periodically by the Committee.

Mr. Adel Hassan AlAali – ChairmanMr. A.V. Babu – MemberMr. Farooq Mahmood Arjomand – Member

This Committee met four times during the financial year 2016.



Operations Committee:

The Committee is empowered to act on behalf of the Board to supervise Company’s operations regularly.

Dr. Osama AlBaharna – ChairmanMr. A.V. Babu – MemberThis Committee met four times during the financial year 2016. Investment Committee:

The Committee was assigned with the task of overseeing the Investment Operations of the Company and monitor the Investment performance on a regular basis.

Mr. Sofyan Adnan AlKhatib – ChairmanMr. Farooq Mahmood Arjomand – Member

The Committee met four times during the financial year 2016.

Nomination and Remuneration Committee:

This Committee had the mandate to review the nomination, remuneration and all related matters of the Board and Executive Management periodically and submit appropriate recommendations to the Board in this regard.

Dr. Osama AlBaharna – ChairmanMr. Adel Hassan AlAali – MemberMr. Farooq Mahmood Arjomand – Member

This Committee met one time during the financial year 2016.

Mr. A.V. Babu was nominated from the Board for Corporate Governance.

8. Risk Management, Compliance and Anti-Money Laundering

AAIC is fully aware of its responsibilities in observing all regulatory provisions and the best international practices in relation to its functioning. It is committed to complying with the international best practices on risk management, compliance and anti-money laundering as reflected by the requirements of the Central Bank of Bahrain. The Internal and External Auditors regularly carry out an independent review of Anti-Money Laundering controls for the attention of the Central Bank.

9. Solvency

Solvency margin requirements are determined in accordance with the regulatory requirements established by the Central Bank of Bahrain and are calculated with reference to prescribed premiums and claims basis. Where these calculations resulting solvency margin requirements falling below the minimum fund size prescribed by regulations, such minimum fund size is considered as the required margin of solvency.

Summarized solvency position of the Company is given below:

BHD MillionsMinimum Tier 1 Capital Required 5.00Tier 1 Capital of the Company 8.60Minimum Solvency Margin Required 1.70Available Capital of the Company 6.90

Accordingly, the available capital of the Company is about 4.1 times the required solvency margin.



10. Remuneration Policy

For DirectorsThe Board of directors is paid an annual remuneration as approved by the shareholders at the annual general meeting subject to approval of regulatory authorities as CBB Rulebook regulations and Bahrain Commercial Companies Law. Directors remuneration is accounted as an expense as per international accounting standards and CBB regulations. In addition, the members are paid sitting fees for the various Board and Committee meetings of the Board of Directors in addition to travel and accommodation costs as applicable.

For EmployeesAs the quality of human capital is fundamental to success, the Company’s remuneration policy is to attract, retain and motivate the best talent. In line with this strategy, employee remuneration and benefits are reviewed and revised bi-annually in the context of business performance, industry and local practices. The executive management is responsible for administering the employee performance process. While a major component of employee remuneration consists of fixed monthly salaries and allowances, employees are provided with several other benefits like GOSI, indemnity, performance bonus, medical and life insurance cover.

11. Auditors

The Audit Committee reviews the appointment of the external auditors, as well as their relationship with the Company. This includes monitoring the use of the auditors for audit and non-audit services, and also the budget of the total fees paid to the auditors. Details with regards to the audit and non-audit fees for 2016 can be obtained from the Corporate Office of the Company.

12. Senior Management Profile

S. VeerapandianActing General Manager – as from 16th October 2016 (previously Deputy General Manager)

Holds a Post Graduate Degree in Arts and is an Associate member of the Insurance Institute of India.

Mr. Veerapandian has vast experience in insurance industry in very senior positions in marketing as well as technical departments. He joined AAIC in June 2002

Raja SrinivasanFinance Manager

Mr. Raja Srinivasan holds a graduation in Science and a Master’s in Financial Management from Jamnalal Bajaj Institute of Management Studies, Mumbai in India. He is also an Associate member of the Insurance Institute of India. Mr. Raja has over 31 years’ experience in the insurance industry heading the finance function of Life and General Insurance operations of both Direct and Reinsurance Companies in India and the Middle East. He joined AAIC in June 2016.



13. Organizational Structure

The basic organization structure of AAIC

14. Compliance

List of Non-Compliance with CBB Guidelines as reported in the CBB onsite report

Guideline Synopsis Action Plan Progress5.2.3 2015 Examination Report

1 HC 1.2.6 Lack of appointment agreements Ensure all appointment agreements are maintained

Completed

2 HC 5.3.2 The nomination and remuneration committee charter was found to have shortcomings

Ensure all nomination and remuneration committee charter shortcomings are rectified

Rectified

The Company confirms to all its stakeholders that appropriate measures are in place to comply with all the regulatory requirements stipulated by the Central Bank of Bahrain, Ministry of Industry and Commerce, Bahrain. Further the Company thankfully noted Central Bank’s recommendations/observations given in their Inspection Report during the year and initiated appropriate steps for necessary implementation. As a listed Company, AAIC also complied with all the regulatory requirements stipulated by the Bahrain Bourse.

THE BOARD OF DIRECTORS28th February 2017

Nomination, Remuneration Committee and Corporate

Governance Committee

Audit Committee

Internal Audit

Executive Committee

General Manager

Deputy General Manager

Board of Directors

MarketingDepartment

Fire & General Accident,Marine & Aviation

Finance,HR & IT

MotorDepartment

Life and Medical

Financial statements 2016

28AlAHLIA INSURANCE 2016 ANNUAL REPORT


To the shareholders of Al Ahila Insurance Company B.S.C.

Tel: +973 17 530 077Fax: +973 17 919 091www.bdo.bh

17th Floor,Diplomat Commercial Office TowerPO Box 787Manama, Kingdom of Bahrain

Independent auditor’s report

Opinion

We have audited the financial statements of Al Ahlia Insurance Company B.S.C. (“the Company”), which comprise the statement of financial position as at 31 December 2016, the statement of profit or loss and other comprehensive income, statement of changes in shareholders’ equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at 31 December 2016, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs).

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in accordance with the Code of Ethics for Professional Accountants (“IESBA Code”) issued by International Ethics Standards Board for Accountants, and we have fulfilled our other ethical responsibilities in accordance with its requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the year ended 31 December 2016. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. The key audit matters include:

Revenue recognitionRevenue represents the total insurance business underwritten and other miscellaneous income. Due to the large number of policies underwritten by the Company there is a risk that the revenue recorded in the financial statements and the flow of premium information from the underwriting systems to the financial reporting ledger is not complete and accurate.

Our audit procedures included considering appropriateness of revenue recognition as per the Company policy including compliance with the applicable accounting standards. We have tested the design, implementation and operating effectiveness of the key controls over revenue recognition, focusing on the flow of information from the underwriting systems to the financial reporting ledger. We have performed substantive procedure over the flow of data from the front office systems through to posting in the general ledger. We tested premium transactions taking place at either side of the statement of financial position date to assess whether the revenue was recognised in the correct period. In addition, we performed substantive analytical procedures on the gross and unearned premium balances.

Financial assets, Available-for-sale investmentsThe Company owns quoted and unquoted investments disclosed in Note 7 which form a material balance in the financial statements of the Company and are subject to change in the fair value. This could have a significant impact on the Company’s results if assets are misstated.

Our audit procedures included the testing of investments acquired and sold during the year on a sample basis, verifying the ownership and classification, checking the fair value of the quoted investments with the Bahrain Bourse and other stock markets, and critically evaluating valuation techniques used for the determination of fair value of investments that are not quoted in active markets and assessing the appropriateness of impairment testing performed by the Company’s management.


Independent auditor’s report contd.


Claims outstanding reserveThe assessment of claims outstanding (Note 15) is an area of high subjectivity, inherent in the estimation of the effect of uncertain or unknown future events and the resulting potential exposure to large losses. The determination of claims outstanding is complex. This balance consists of specific claims reserves for reported claims in addition to an estimate for claims incurred but not reported (“IBNR”) as some claims can take some time to emerge or develop. Actuarial techniques have been used by an external qualified actuary to determine the best estimate for IBNR. The completeness and accuracy of the data underlying the actuarial projections has a direct bearing on the accuracy of the provision.

Our audit procedures included testing the accuracy of prior period claims provisioning, assessing key controls around claims processing and the internal reserving process, including controls over the setting of reserves for reported claims and controls over the completeness and accuracy of the data underlying the actuarial projections used. We also evaluated the competence, capability, independence, methodology and objectivity of the external actuaries used by the Company. We benchmarked the Company’s methodology, key assumptions and projected results (such as the ultimate loss ratios) against our expectations. We have considered the adequacy of the Company’s disclosures over the degree of estimation uncertainty and the sensitivity of recognised amounts to changes in assumptions.

Insurance receivablesRecoverability of policyholders, insurance brokers and reinsurance receivables (Notes 8 and 9) is a key audit matter given that the provisioning for non-recoverability requires judgement to be applied by the management.

Our audit procedures included evaluating and testing of key controls over the processes of granting credit and collecting insurance and reinsurance receivables. We also reviewed the aging analysis at the year end, and checked the recoveries made after the year end. We assessed the terms of the reinsurance contracts/treaties in place. Detailed substantive procedures were performed to assess the reasonableness of provisions critically assessing the method used by management and assumption they made.

Uncertainties in policyholder claims and litigationsThe Company is defendant in numbers of litigation cases as disclosed in Note 30 to these financial statements. Depending on legal advice received and management’s expected, claims, including litigations, are either provided for as a liability or reflected as contingent liabilities in the notes to the financial statements. The Company uses external legal advice where applicable to evaluate the likely outcome.

Our audit procedures included gaining an understanding of the claims and litigation case through discussion with management and their legal counsel. We obtain written reports from the Company’s external legal advisers providing their views on the likely outcome of legal claims. We assessed the decisions by management to treat claims as either a liability or a contingent liability, and the completeness and adequacy of the related disclosure in the financial statements.

Other information

Management is responsible for the other information. The other information in the annual report comprise of Directors’ report and Corporate Governance report but does not include the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information; we are required to report that fact. We have nothing to report in this regard.


Responsibilities of management and Those Charged With Governance (“TCWG”) for the financial statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

Those Charged With Governance are responsible for overseeing the Company’s financial reporting process.

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.




We communicate with the management and TCWG regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide TCWG with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with TCWG, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on other legal and regulatory requirements

As required by the Bahrain Commercial Companies Law and the Central Bank of Bahrain (CBB) Rule Book (Volume 3), we report that: the Company has maintained proper accounting records and the financial statements are in agreement therewith: the financial information contained in the Directors’ report is consistent with the financial statements; we are not aware of any violations of the Bahrain Commercial Companies Law, the Central Bank of Bahrain and Financial Institutions Law, the CBB Rule Book (Volume 3 and applicable provisions of Volume 6) and CBB directives, regulations and associated resolutions, rules and procedures of the Bahrain Bourse or the terms of the Company’s memorandum and articles of association having occurred during the year that might have had a material adverse effect on the business of the Company or on its financial position; and satisfactory explanations and information have been provided to us by the management in response to all our requests.

Manama, Kingdom of Bahrain28 February 2017




Statement ofFinancial Positionas at 31 December 2016 (Expressed in Bahrain Dinars)

Notes 2016 2015ASSETSCash and bank balances 5 10,439,741 8,464,147Statutory deposit 6 125,000 125,000Available-for-sale investments 7 6,592,510 8,084,020Receivables Policyholders 8 3,003,528 3,023,122 Insurance and reinsurance companies 9 2,703,609 1,906,248 Deferred reinsurance premiums 10 2,709,878 1,493,035 Deferred policy acquisition costs 11 380,335 284,974 Other receivables 12 291,242 249,096Outstanding claims recoverable from reinsurers 13 2,729,909 1,714,113Property, plant and equipment 14 850,475 823,484TOTAL ASSETS 29,826,227 26,167,239LIABILITIESInsurance funds Outstanding claims reserve 15 6,484,739 5,012,236 Unearned gross premiums 16 5,942,100 4,508,153 Unearned commissions 17 392,232 406,960Payables and other liabilities Policyholders 702,993 533,832 Insurance and reinsurance companies 464,684 786,489 Other payables 18 2,006,071 1,812,099Employees’ terminal benefits 19 154,769 153,859TOTAL LIABILITIES 16,147,588 13,213,628TOTAL NET ASSETS 13,678,639 12,953,611SHAREHOLDERS’ EQUITYShare capital 20 6,188,663 6,188,663Statutory reserve 21 2,409,654 2,406,473Investment fair value reserve 22 1,813,209 1,119,989Property revaluation reserve 22 747,312 747,312Retained earnings 2,523,525 2,494,898Treasury shares 20 (3,724) (3,724)TOTAL SHAREHOLDERS’ EQUITY 13,678,639 12,953,611

These financial statements, set out on pages 28 to 66, were approved and authorised for issue by the Board of Directors on 28 February 2017 and signed on its behalf by:

Dr. Osama Taqi Al BaharnaChairman

Abdulellah Al QassimiVice Chairman


Dr. Osama Taqi Al BaharnaChairman

Abdulellah Al QassimiVice Chairman

Notes 2016 2015Gross premiums 24 13,529,014 10,926,418Reinsurance ceded 24 (4,801,818) (5,005,548)Retained premiums 24 8,727,196 5,920,870Adjustment in unearned premiums 24 (217,104) (392,393)Net premiums earned 8,510,092 5,528,477Gross claims paid 15 (8,012,404) (7,259,921)Claims recovered from reinsurers 1,831,416 2,185,728Outstanding claims adjustment – gross (1,471,470) 1,655,400Outstanding claims adjustment- reinsurance recoveries 1,015,796 (644,896)Net claims incurred (6,636,662) (4,063,689)Management expenses 24 (612,905) (550,135)Net commission income 24 203,469 518,499Provision on insurance and re-insurance receivables 8 & 9 (67,051) (10,734)

(476,487) (42,370)Underwriting profit for the year 1,396,943 1,422,418 Realised (loss)/gain on the sale of available-for-sale investments (549,450) 36,750Investment income 25 457,460 551,541Impairment loss on available-for-sale investments 7 (308,440) (2,034,645)Other income 7,199 226,439Total investment and other loss (393,231) (1,219,915)General and administrative expenses 26 (971,904) (825,202)Net profit/(loss) for the year 31,808 (622,699)Basic and diluted earnings per share 27 fils0.51 (fils10.07)

Statement ofProfit or Lossfor the year ended 31 December 2016 (Expressed in Bahrain Dinars)

These financial statements, set out on pages 28 to 66, were approved and authorised for issue by the Board of Directors on 28 February 2017 and signed on its behalf by:


Statement ofother comprehensive income for the year ended 31 December 2016 (Expressed in Bahrain Dinars)

Notes 2016 2015Net (loss)/profit for the year 31,808 (622,699)Other comprehensive incomeItems that may be reclassified into profit or loss:Unrealised fair value gain/(loss) on available-for-sale investments 7 477,419 (322,800)Net movement in the fair value reserve on imapairment losses onavailable-for-sale-investments 7 79,680 936,037

Net movement in fair value reserve on sale of available-for-sale-investments 136,121 4,048

Total other comprehensive income for the year 693,220 617,285Total comprehensive profit/(loss) for the year 725,028 (5,414)


Statement of changesin shareholders’ equity for the year ended 31 December 2016 (Expressed in Bahrain Dinars)

Notes Sharecapital

Statutoryreserve

Investmentfair valuereserve

Propertyrevaluation

reserve

Retainedearnings

Treasuryshares Total

As at 31 December 2014 6,188,663 2,406,473 502,704 747,312 5,591,573 (3,724) 15,433,001Dividend paid for 2014 23 - - - - (2,473,976) - (2,473,976)Total comprehensive loss for the year - - 617,285 - (622,699) - (5,414)

As at 31 December 2015 6,188,663 2,406,473 1,119,989 747,312 2,494,898 (3,724) 12,953,611Total comprehensive income for the year - - 693,220 - 31,808 - 725,028

Transferred to statutory reserve 21 - 3,181 - - (3,181) - -

As at 31 December 2016 6,188,663 2,409,654 1,813,209 747,312 2,523,525 (3,724) 13,678,639


Statement ofcash flows for the year ended 31 December 2016 (Expressed in Bahrain Dinars)

Notes 2016 2015Operating activitiesNet profit/(loss) for the year 31,808 (622,699)Adjustments for: Depreciation 14 26,181 15,514 Dividend income 25 (343,100) (372,220) Interest income 25 (114,360) (179,321) Impairment losses on available-for-sale investments 7 308,440 2,034,645 Realised loss/(gains) on sale of available for-sale investments 549,450 (36,750) Realised gain on sale of property, plant and equipment (3,850) -Changes in operating assets and liabilities: Receivables (2,132,117) (834,430) Outstanding claims recoverable from re-insurers (1,015,796) 644,896 Insurance funds 2,891,722 (1,561,505) Payables and other liabilities 107,058 331,755Provision for employees’ leaving indemnity, net 910 22,291Net cash provided by/(used in) operating activities 306,346 (557,824)

Investing activitiesDividend income received 25 343,100 372,220Interest income received 25 114,360 179,321Purchase of available-for-sale investments 7 (51,360) (2,215,505)Proceeds from sale of available-for-sale investments 1,378,200 4,435,835Purchase of property, plant and equipment 14 (53,172) (6,400)Proceed from sale of property, plant and equipment 3,850 -Net cash provided by investing activities 1,734,978 2,765,471Financing activitiesDividend paid (65,730) (2,286,045)Net cash used in financing activities (65,730) (2,286,045)Net increase/(decrease) in cash and cash equivalents 1,975,594 (78,398)Cash and cash equivalents, beginning of the year 8,464,147 8,542,545Cash and cash equivalents, end of the year 5 10,439,741 8,464,147


1. Organisation and activities Al Ahlia Insurance Company B.S.C. (“the Company”) is a public shareholding company registered with the Ministry of Industry and Commerce in the Kingdom of Bahrain and operates under commercial registration number 5091 obtained on 17 August 1976.

The Company is licensed to carry out insurance and reinsurance of all risks.

During the year, the Company received the letter of intent from Solidarity Group Holding B.S.C.(c) for their interest in the acquisition of a majority stake in the issued share capital of the Company. As a result the Solidarity Group Holding B.S.C.(c) acquired 71.46% shareholding of the Company.

The Company is a subsidiary of Solidarity Group Holding B.S.C. (c) (“the Parent Company”), a company registered in the Kingdom of Bahrain.

The registered office of the Company is in the Kingdom of Bahrain.

2. Basis of preparation

Statement of compliance

The financial statements have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) as promulgated by the International Accounting Standards Board (“IASB”), interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”) and the requirements of the Bahrain Commercial Companies Law, Decree Number 21 of 2001, the Central Bank of Bahrain and Financial Institutions Law 2006 and the insurance regulations set out in Volume 3 and applicable provisions of Volume 6 of the Rulebook issued by the Central Bank of Bahrain and associated resolutions, rules and procedures of the Bahrain Bourse.

Basis of preparation

The financial statements have been prepared using going concern assumption under the historical cost convention, modified by the remeasurement of available-for-sale investments and freehold land at fair market value at the statement of financial position date.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgment in the process of applying the Company’s accounting policies. The areas requiring exercise of judgment in applying Company’s accounting policies are disclosed in Note 4 to the financial statements.

Improvements/amendments to IFRS 2012/2014 and 2014/2016 cycles

Improvements/amendments to IFRS/IAS issued in 2012/2014 and 2014/2016 cycles contained numerous amendments to IFRS that the IASB considers non-urgent but necessary. ‘Improvements to IFRS’ comprise amendments that result in accounting changes to presentation, recognition or measurement purposes, as well as terminology or editorial amendments related to a variety of individual IFRS standards. The amendments are effective for the Company’s annual audited financial statements beginning on or after 1 January 2016 and subsequent periods with earlier adoption permitted. No material changes to accounting policies are expected as a result of these amendments.

Standards, amendments and interpretations effective and adopted in 2016

There were no new standards or interpretations effective for the first time for periods beginning on or after 1 January 2016 that had a significant effect on the Company’s financial statements.

Notes to thefinancial statementsfor the year ended 31 December 2016 (Expressed in Bahrain Dinars)



2. Basis of preparation (continued)

Standards, amendments and interpretations issued and effective in 2016 but not relevant

The following new standards, amendments to existing standards and interpretations to published standards are mandatory for accounting periods beginning on or after 1 January 2016 or subsequent periods, but are not relevant to the Company’s operations:

Standard or Interpretation Title

Effective for annual periods beginning on

or after IAS 1 Presentation of Financial Statements 1 January 2016IAS 16 Property, plant and equipment 1 January 2016IAS 19 Employee Benefits 1 January 2016IAS 27 Separate Financial Statements 1 January 2016IAS 28 Investments in Associates and Joint Ventures 1 January 2016IAS 34 Interim Financial Reporting 1 January 2016IAS 38 Intangible assets 1 January 2016IAS 41 Agriculture 1 January 2016IFRS 5 Non-current assets held for sale and discontinued operations 1 January 2016IFRS 7 Financial Instruments – Disclosures 1 January 2016IFRS 10 Consolidated Financial Statements 1 January 2016IFRS 11 Joint Arrangements 1 January 2016IFRS 12 Disclosure of Interests in Other Entities 1 January 2016IFRS 14 Regulatory Deferral Accounts 1 January 2016

Standards, amendments and interpretations issued but not yet effective in 2016

The following new/amended accounting standards and interpretations have been issued, but are not mandatory for financial year ended 31 December 2016. They have not been adopted in preparing the financial statements for the year ended 31 December 2016 and are expected to affect the entity in the period of initial application. In all cases, the entity intends to apply these standards from application date as indicated in the table below.

Standard or Interpretation Title

Effective for annual periods beginning on

or after IAS 40 Investment properties 1 January 2018IFRS 9 Financial instruments 1 January 2018IFRS 15 Revenue from Contracts with Customers 1 January 2018IFRIC 22 Foreign Currency Transactions and Advance Consideration 1 January 2018IFRS 16 Leases 1 January 2019

There would have been no change in the operational results of the Company for the year ended 31 December 2016 had the Company early adopted any of the above standards applicable to the Company, except for the adoption of IFRS 9, IFRS 15 and IFRS 16 which would impact the classification and measurement of certain financials assets.

Early adoption of amendments or standards in 2016

The Company did not early-adopt any new or amended standards in 2016.



3. Significant accounting policies

The principal accounting policies adopted in the preparation of these financial statements is set out below. The policies have been consistently applied to all the years presented, unless otherwise stated.

INSURANCE OPERATIONS

Gross premiums

Gross premiums represent the total insurance business underwritten during the year.

Unearned premiums

Unearned contributions are estimated amounts of premiums under insurance contracts which is to be earned in the following or subsequent financial periods, for the unexpired period of insurance as at the reporting date. Unearned contributions have been calculated on gross premium as follows:

• by the 24th method for all annual insurance contracts, except for marine cargo business, and • by the 6th method for marine cargo business, in order to spread the contributions earned over the tenure of the insurance contracts.

Reinsurance

In the ordinary course of business, the Company cedes insurance through reinsurance contracts. Such reinsurance arrangements provide for greater diversification of business, allow management to control exposure to potential losses arising from large risks, and provide additional capacity for growth. A significant portion of the reinsurance is affected under treaty, facultative and excess-of-loss reinsurance contracts.

Amounts receivable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured parties.

The Company assesses its reinsurance assets for impairment at each reporting date. If there is objective evidence that the reinsurance asset is impaired, the Company reduces the carrying amount of the reinsurance asset to its recoverable amount and recognises that impairment loss in the statement of profit or loss.

Claims settled

Claims settled in the year are charged to the statement of profit or loss net of reinsurance, salvage and other recoveries. At the reporting date, provision is made for all outstanding claims including claims incurred but not reported (IBNR). Outstanding claims

For general insurance contracts, estimates have to be made for both the expected ultimate cost of claims reported at the reporting date and for the expected ultimate cost of claims incurred but not reported (IBNR) at the reporting date.

Provision for outstanding claims is based on estimates of the loss, which will eventually be payable on each unpaid claim, established by the management in the light of current available information and past experience and modified for changes reflected in current conditions, increased exposure, rising claims costs and the severity and frequency of recent claims, as appropriate.

The IBNR provision is based on statistical information related to actual past experience of claims incurred but not reported. The IBNR provision also includes a further amount, subject to annual review by the management, to meet certain contingencies such as:

• Unexpected and unfavorable court judgments which may require a higher payout than originally estimated; and • Settlement of claims, which may take longer than expected, resulting in actual payouts being higher than estimated.



3. Significant accounting policies (continued)

INSURANCE OPERATIONS (continued)

Liability adequacy test

At each reporting date, the Company assesses the adequacy of its insurance liabilities using current estimates of future cash flows under insurance contracts. If the assessment shows that the carrying amount of its insurance liabilities is inadequate in the light of estimated future cash flows, the entire deficiency is recognised in the statement of profit or loss.

Commission income

Commission income represents commissions received from reinsurers under the terms of ceding and is net of acquisition costs paid. Commission income is matched with premiums earned resulting in an element of unearned commission being carried forward at the reporting date.

Commission expense

Commission expense is accounted for at the time policies are written.

Deferred commission and acquisition costs

Commission expense and other acquisition costs incurred during the financial period that vary with and are related to securing new insurance contracts and/or renewing existing insurance contracts, but which relate to subsequent financial periods are deferred to the extent that they are recoverable out of the future revenue margins.

Unearned commission income is deferred based on the sixth method for marine cargo and the twenty-fourth method for other classes of business.

GENERAL

Property, plant and equipment

All property, plant and equipment are stated at cost less accumulated depreciation and provision for impairment losses, if any, with the exception of freehold land which is stated at open market values, based on periodical valuations conducted by external independent property valuers. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date.

Expenditure subsequent to initial recognition is capitalised only when it increases future economic benefits embodied in the item of property, plant and equipment. Repairs and renewals are charged to the statement of profit or loss when the expenditure is incurred.

Depreciation is provided on historical cost using the straight line method, at annual rates which are intended to write-off the cost of the assets over their estimated economic useful lives, as follows:

Building 20 yearsOffice equipment 4 yearsFurniture and fixtures 4 yearsMotor vehicles 4 years

All depreciation is charged to the statement of profit or loss. When an asset is sold or otherwise retired, the cost and related accumulated depreciation are removed and any resultant gain or loss is taken is recognised in the statement of profit or loss.

The carrying values of the property and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying values may not be recoverable. If any such indication exists, and where the carrying values exceed the estimated recoverable amounts, the property and equipment are written-down to their recoverable amounts.




GENERAL (continued)

Property, plant and equipment(continued)

Increases in the carrying amount arising on revaluation of property are credited to a property revaluation reserve in the statement of changes in shareholder’s equity. Decreases that offset previous increases of the same class of revalued assets are charged against the revaluation reserve. On disposal of the revalued assets, the balance in the revaluation reserve relating to these assets is transferred to retained earnings.

Financial assets

The Company classifies its financial assets into one of the following categories: available-for-sale investments and loans and receivables. This classification depends on the purpose for which the asset is acquired

(a) Available-for-sale investments

Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are classified as available-for-sale investments. These are included in non-current assets unless management has the express intention of holding the investment for less than 12 months from the statement of financial position date, or unless they need to be sold to raise operating capital, in which case they are included in current assets. Available-for-sale investments are initially recorded at cost and subsequently re-measured at their fair values. Unrealised gains and losses arising from changes in the fair value of available-for-sale investments are recognised in the statement of other comprehensive income. The fair value of investments listed on active markets is determined by reference to quoted market prices. The fair value of securities listed on inactive markets and unlisted investments are determined using other generally accepted valuation methods. Refer note 29 where more details of valuation techniques used are discussed.

The fair value changes of available-for-sale investments are reported in the statement of other comprehensive income until such investments are sold, at which time the realised gains or losses are reported in the statement of profit or loss.

The Company assesses at each statement of financial position date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the securities below their cost is considered as an indicator that the investments are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on those financial assets previously recognised is removed from equity and recognised in the statement of profit or loss.

(b) Loans and receivables

These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of services to customers (e.g. insurance receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

The Company’s loans and receivables comprise insurance and other receivables (net of prepaid expenses) and cash and cash equivalents in the statement of financial position.

Insurance and other receivables

Insurance and other receivables are stated at cost less an allowance for uncollectible amounts. An estimate for uncollectible amounts is made when collection of the full amount is no longer probable. Bad-debts are written-off as incurred.

Cash and cash equivalents

For the purpose of statement of cash flows, cash and cash equivalents comprise of cash on hand and bank balances.




GENERAL (continued)

Financial liabilities

The financial liabilities of the Company consist of insurance and other payables (excluding employee benefits). These financial liabilities are initially recognised at fair value and are subsequently remeasured at amortised cost using the effective interest method.

Insurance and other payables

Insurance and other payables (excluding employee benefits) are recognised for amounts to be paid in the future claims settled or for services received, whether billed by the supplier or not.

Employees’ terminal benefits

Short-term benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A provision is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

Post-employment benefits

Employee benefits and entitlements to annual leave, holiday, air passage and other short-term benefits are recognised as they accrue to the employees. The Company contributes to the pension scheme for Bahraini nationals administered by the Social Insurance Organisation in the Kingdom of Bahrain. This is a defined contribution pension plan and the Company’s contributions are charged to the statement of profit or loss and other comprehensive income in the year to which they relate. In respect of this plan, the Company has a legal obligation to pay the contributions as they fall due and no obligation exists to pay the future benefits.

The expatriate employees of the Company are paid leaving indemnity in accordance with the provisions of the Bahrain Labour Law. The Company accrues for its liability in this respect on an annual basis.

Share capital

Financial instruments issued by the Company are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset. The Company’s ordinary shares are classified as equity instruments.

Treasury shares

Where the company purchases its own equity share capital, the consideration paid including any attributable transaction costs are deducted from total shareholders’ equity as treasury shares until they are cancelled. Where such shares are subsequently sold or reissued, any profit or loss is included in the statement of changes in shareholders’ equity.

Investment fair value reserve

The investment fair value reserve represents the unrealised gains or losses on the valuation of available-for-sale investments. In the event of sale or impairment, the cumulative gains or losses recognized in investment fair value reserve are included in the statement of other comprehensive income for the year.

Proposed appropriations

Dividends and other proposed appropriations are recognised as liability in the period in which they are approved by the shareholders.




GENERAL (continued)

Board members’ remuneration

Board members’ remuneration is recognised in the statement of profit or loss in the year in which it is paid.

Provisions

Provisions are recognised when the Company has an obligation (legal or constructive) arising from a past event, and the costs to settle the obligation are both probable and able to be reliably measured. Provision for leave pay and passage is recognised for employees at the statement of financial position date.

Investment income

Interest income on bonds is recognised on an accrual basis. Whereas dividend income are recognised when the right to receive a dividend is established.

Other income

Other income is recognised in the statement of profit or loss on an accruals basis, or when the Company’s right to receive payment is established.

Impairment

The carrying amounts of the Company’s assets are reviewed at each statement of financial position date to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount of the assets is estimated. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. All impairment losses are recognised in the statement of profit or loss.

Foreign currency translation

(i) Functional and presentation currency

Items included in the financial statements of the Company’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The financial statements are presented in Bahrain Dinars, which is the Company’s functional and presentation currency.

(ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of profit or loss. Translation differences on non-monetary items classified as available-for-sale financial assets are included in investments fair value reserve.

4. Critical accounting judgment and key source of estimation uncertainty

Preparation of the financial statements in accordance with IFRS requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. The determination of estimates requires judgments which are based on historical experience, current and expected economic conditions, and all other available information. Actual results could differ from those estimates.



4. Critical accounting judgment and key source of estimation uncertainty (continued)

The most significant areas requiring the use of management estimates and assumptions relate to:

• the ultimate liability arising from claims made under insurance contracts;• legal proceedings;• classification of investments;• fair valuation of available-for-sale investments;• impairment of available-for-sale investments;• fair value measurement;• economic useful lives of property, plant and equipment;• going concern;• provisions; and• contingencies

The ultimate liability arising from claims made under insurance contracts

The estimation of the ultimate liability arising from claims made under insurance contracts is the Company’s most critical accounting estimate. There are several sources of uncertainty that need to be considered in the estimate of the liability that the Company will ultimately pay for such claims. The estimations for claims incurred but not reported (IBNR) uses statistical models including an estimation made to meet certain contingencies such as unexpected and unfavorable court judgments which may require a higher payout than originally estimated and settlement of claims, and which may take longer than expected, resulting in actual payouts being higher than estimated.

Legal proceedings

The Company reviews outstanding legal cases following developments in the legal proceedings and at each reporting date, in order to assess the need for provisions and disclosures in its financial statements. Among the factors considered in making decisions on provisions are the nature of litigation, claim or assessment, the legal process and potential level of damages in the jurisdiction in which the litigation, claim or assessment has been brought, the progress of the case (including the progress after the date of the financial statements but before those statements are issued), the opinions or views of legal advisers, experience on similar cases and any decision of the Company’s management as to how it will respond to the litigation, claim or assessment.

Classification of investments

In the process of applying the Company’s accounting policies, management decides upon acquisition of an investment, whether it should be classified as investments carried at fair value through statement of profit or loss, held for maturity or available for sale investments. The classification of each investment reflects the management’s intention in relation to each investment and is subject to different accounting treatments based on such classification.

Fair valuation of available-for-sale investments

The Company determines fair values of available-for-sale investments that are not quoted in active markets by using valuation techniques such as discounted cash flows and recent transaction prices. Fair value estimates are made at a specific point in time, based on market conditions and information about the investee companies. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore, cannot be determined with precision. There is no certainty about future events (such as continued operating profits and financial strengths). It is reasonably possible, based on existing knowledge, that outcomes within the next financial year that are different from assumptions could require a material adjustment to the carrying amount of the available-for-sale investments. In case where discounted cash flow models have been used to estimate fair values, the future cash flows have been estimated by the management based on information from and discussions with representatives of the management of the investee companies, and based on the latest available audited and un-audited financial statements.



4. Critical accounting judgment and key source of estimation uncertainty (continued)

Impairment of available-for-sale investments

The Company determines that available-for-sale investments are impaired when there has been a significant or prolonged decline in the fair value below its cost. This determination of what is significant or prolonged requires judgment and is assessed for each investment separately. The Company considers a decline of more than 30% in the fair value below cost to be significant and considers a decline below cost which persists for more than 6 months as prolonged.

Fair value measurement

A number of assets and liabilities included in the financial statements require measurement at, and/or disclosure of, fair value.

The fair value measurement of the Company’s financial and non-financial assets and liabilities utilises market observable inputs and data as far as possible. Inputs used in determining fair value measurements are categorised into different levels based on how observable the inputs used in the valuation technique utilised are (the ‘fair value hierarchy’):

Level 1: Quoted prices in active markets for identical items (unadjusted)Level 2: Observable direct or indirect inputs other than Level 1 inputsLevel 3: Unobservable inputs (i.e. not derived from market data).

The classification of an item into the above levels is based on the lowest level of the inputs used that has a significant effect on the fair value measurement of the item and transfers of items between levels are recognised in the period they occur.

The financial assets and financial liabilities of the Company that either require fair value measurements or only fair value disclosures as at 31 December 2016 are disclosed in Note 29.

Economic useful lives of property, plant and equipment

The Company property, plant and equipment are depreciated on a straight-line basis over their economic useful lives. Economic useful lives of property, plant and equipment are reviewed by management quarterly. The review is based on the current condition of the assets and the estimated period during which they will continue to bring economic benefit to the Company.

Going concern

The management of the Company reviews the financial position on a periodical basis and assesses the requirement of any additional funding to meet the working capital requirements and estimated funds required to meet the liabilities as and when they become due. In addition, the shareholders of the Company ensure that they provide adequate financial support to fund the requirements of the Company to ensure the going concern status of the Company.

Provisions

At 31 December 2016, in the opinion of the Company management, a provision of BD457,762 (2015: BD390,711) is required towards impaired policyholders and insurance/reinsurance companies receivables. When evaluating the adequacy of the provision for impaired receivables, management bases its estimate on current overall economic conditions, ageing of the receivables balances, historical write-off experience, customer creditworthiness and changes in payment terms. Changes in the economy, industry or specific customer conditions may require adjustments to the provision for impaired policyholders and insurance companies receivables recorded in the financial statements.

Contingencies

By their nature, contingencies will only be resolved when one or more future events occur or fail to occur. The assessment of such contingencies inherently involves the exercise of significant judgment and estimates of the outcome of future events.



5. Cash and bank balances

31 December2016

31 December2015

Cash on hand 1,200 1,200Deposit with Arcapita 52,546 52,546Less: provision for doubtful deposits (52,546) -Current account balances with banks 10,438,541 8,410,401

10,439,741 8,464,147

The bank balances are held in non-interest bearing current accounts.

The Company has obtained bank overdraft facility from local financial institutions to finance its working capital requirements. The overdraft facility is unsecured and bears interest at 6.25% (2015: 6.25%) per annum. During the year ended 31 December 2016 and 2015, the Company has not utilised the overdraft facility.

6 Statutory deposit

Statutory deposits are maintained under the regulations of the Central Bank of Bahrain and Financial Institutions Law, 2006. Such deposits, which depend on the nature of the insurance business and the number of branches, cannot be withdrawn except with the approval of the Central Bank of Bahrain. A sum of BD125,000 (2015: BD125,000) has been deposited with National Bank of Bahrain in the name of the Company and for the order of Central Bank of Bahrain and carries a fixed rate of return.

7. Available-for-sale investments

31 December2016

31 December2015

Opening balance 8,084,020 11,684,960Additions during the year 51,360 2,215,505Disposals during the year (1,791,529) (4,395,037)Impairment losses for the year (228,760) (1,098,608)Unrealised fair value gain/(loss) recognised in statement of other comprehensive income 477,419 (322,800)Closing balance 6,592,510 8,084,020

Impairment loss recognised in statement of profit or loss is as below: 31 December

201631 December

2015Impairment loss on available-for-sales investments 228,760 1,098,608Net movement through investment fair value reserve instatement of other comprehensive income 79,680 936,037

308,440 2,034,645

The Company has performed an impairment test over the available-for-sale investments and concluded that certain of those investments are impaired. Accordingly, an impairment loss of BD308,440 (2015: BD2,034,645) has been charged to the statement of profit or loss.

Analysis of available-for-sale investments31 December

201631 December

2015Equity instruments listed on stock exchanges 4,147,370 5,647,260Quoted bonds 790,940 782,560Unquoted equity investments 1,654,200 1,654,200

6,592,510 8,084,020



7. Available-for-sale investments (continued)

Available-for-sale investments are denominated in the following currencies:

Currency 31 December2016

31 December2015

UAE Dirham 3,244,105 2,669,090Bahrain Dinar 1,654,200 1,654,200United States Dollar 779,120 758,920Iraqi Dinar 577,785 693,686Singapore Dollar 325,480 302,480Omani Riyal 11,820 23,640Saudi Riyal - 1,114,930Qatari Riyal - 867,074

6,592,510 8,084,020

8. Policyholders receivables

31 December2016

31 December2015

Policyholders receivables 3,274,239 3,293,833Provision for impaired receivables (270,711) (270,711)

3,003,528 3,023,122

Policyholders receivables are generally on 90 to 120 days credit terms.

The movement in provision for impaired receivables is as follows: 31 December

201631 December

2015Opening balance 270,711 259,977Provision made in the current year (Note 24) - 10,734Closing balance 270,711 270,711

The ageing of net policyholders receivables is as follows:

Age in days Current 0 to 120

Overdue and not impairedTotal

120 to 180 181 to 365 Above 3652016 1,635,167 417,797 667,869 282,695 3,003,5282015 1,731,138 442,187 463,661 386,136 3,023,122

The fair values of policyholders receivables are expected, on the basis of past experience, to be fully recoverable. It is not the practice of the Company to obtain collateral over receivables and the vast majority are, therefore, unsecured.



9. Insurance and reinsurance companies receivables

31 December2016

31 December2015

Insurance and reinsurance companies receivables 2,890,660 2,026,248Provision for impaired receivables (187,051) (120,000)

2,703,609 1,906,248

Two companies account for40% (2015: 24%) of the total insurance balances receivable as at 31 December 2016. Arrangements with insurers normally require settlement on a quarterly basis.

The movement in provision for impaired receivables is as follows: 31 December

201631 December

2015Opening balance 120,000 120,000Provision made in the current year 67,051 -Closing balance 187,051 120,000

The ageing of insurance and reinsurance companies’ receivables are as follows:

Age in days Current 0 to 120

Overdue and not impairedTotal

120 to 180 181 to 365 Above 3652016 1,157,849 203,131 1,052,242 290,387 2,703,6092015 855,785 205,069 407,169 438,225 1,906,248

All insurance and reinsurance companies receivables are expected, on the basis of past experience, to be fully recoverable. It is not the practice of the Company to obtain collateral over insurance and reinsurance receivables.

10. Deferred reinsurance premiums

The movement in deferred reinsurance premiums during the year ended 31 December 2016 and 31 December 2015 is as follows:

Fire,GeneralAccident

and Engineering

Marine andAviation

Life andMedical Motor 2016

Total2015Total

Opening balance 462,166 80,082 779,279 171,508 1,493,035 1,768,824Reinsurance premium deferred 877,158 55,237 1,622,500 154,983 2,709,878 1,493,035Reinsurance premium released (462,166) (80,082) (779,279) (171,508) (1,493,035) (1,768,824)Closing balance 877,158 55,237 1,622,500 154,983 2,709,878 1,493,035



11. Deferred policy acquisition costs

The movement in deferred policy acquisition costs movement during the year ended 31 December 2016 and 31 December 2015 are as follows:


and Engineering

Marine andAviation


Total2015Total

Opening balance 65,243 5,947 72,519 141,265 284,974 316,400Commission incurred 37,627 4,938 159,915 177,855 380,335 284,974Commission paid (65,243) (5,947) (72,519) (141,265) (284,974) (316,400)Closing balance 37,627 4,938 159,915 177,855 380,335 284,974

12. Other receivables

31 December2016

31 December2015

Deposit with Third Party Administrator (TPA) 185,976 185,976Accrued interest 13,230 13,230Prepaid expenses and other deposits 33,244 31,062Other receivables 58,792 18,828

291,242 249,096

Other receivables are not considered impaired and expected, on the basis of past experience, to be fully recoverable within 12 months from the statement of financial position date.

13. Outstanding claims recoverable from reinsurers

31 December2016

31 December2015

Opening balance 1,714,113 2,359,009Additions during the year 2,847,212 1,540,832Received during the year (1,831,416) (2,185,728)Closing balance 2,729,909 1,714,113

All outstanding claims recoverable from reinsurers are not considered impaired and are expected, on the basis of past experience, to be fully recoverable.



14. Property, plant and equipment

Landand

Building

Furniture, Fixtures, and

Office Equipment

Motor Vehicles Total

CostAt 31 December 2014 852,911 234,489 14,600 1,102,000Additions - 6,400 - 6,400At 31 December 2015 852,911 240,889 14,600 1,108,400Additions - 35,616 17,556 53,172Disposals - - (15,000) (15,000)At 31 December 2016 852,911 276,505 17,156 1,146,572Accumulated depreciationAt 31 December 2014 52,911 201,891 14,600 269,402Charge for the year - 15,514 - 15,514At 31 December 2015 52,911 217,405 14,600 284,916Charge for the year - 21,792 4,389 26,181On disposals - - (15,000) (15,000)At 31 December 2016 52,911 239,197 3,989 296,097Net book amountAt 31 December 2016 800,000 37,308 13,167 850,475At 31 December 2015 800,000 23,484 - 823,484

During December 2013, the Company obtained an open market valuation of land from an independent real estate valuer, which reflected the total value of the land at BD825,353 resulting in an unrealised fair value gain amounting to BD25,353. However, on a conservative basis, the management of the Company has taken a decision not to include fair value reserve in the statement of changes in equity. The carrying value is considered to be not different compared to the fair value by the management.

The Company operates from premises leased at a monthly rental of BD7,149 (2015: BD5,949 per month).



15. Outstanding claims reserve

The movement in the outstanding claims reserve during the year ended 31 December is as follows:


and Engineering

Marine andAviation


Total2015Total

Opening balance 1,136,749 145,678 525,705 3,204,104 5,012,236 6,667,636Claims incurred 1,282,090 4,291 3,697,914 4,500,612 9,484,907 5,604,521Claims paid (372,200) (34,718) (3,689,187) (3,916,299) (8,012,404) (7,259,921)Closing balance 2,046,639 115,251 534,432 3,788,417 6,484,739 5,012,236

The gross outstanding claims reserve at 31 December is as follows:

Current year claims 1,097,681 11,890 400,000 1,537,888 3,047,459 1,543,380Prior year claims 940,454 102,630 125,383 1,760,861 2,929,328 3,055,791Incurred but notreported 8,504 731 9,049 489,668 507,952 413,065

2,046,639 115,251 534,432 3,788,417 6,484,739 5,012,236

16. Unearned gross premiums

The movement in unearned gross premiums during the year ended 31 December is as follows:


and Engineering

Marine andAviation


Total2015Total

Opening balance 578,924 105,271 1,184,973 2,638,985 4,508,153 4,391,549Premiums received 958,104 70,547 1,928,366 2,985,083 5,942,100 4,508,153Premiums released (578,924) (105,271) (1,184,973) (2,638,985) (4,508,153) (4,391,549)Closing balance 958,104 70,547 1,928,366 2,985,083 5,942,100 4,508,153

17. Unearned commissions

The movement in unearned commissions during the year ended 31 December is as follows:


and Engineering

Marine andAviation


Total2015Total

Opening balance 252,544 28,120 95,032 31,264 406,960 429,669Commission received 165,414 21,664 109,282 95,872 392,232 406,960Commission earned (252,544) (28,120) (95,032) (31,264) (406,960) (429,669)Closing balance 165,414 21,664 109,282 95,872 392,232 406,960



18. Other payables

31 December2016

31 December2015

Garage payables 566,891 561,981Unclaimed dividends 431,462 495,691Accrued expenses and other payables 938,849 680,943Provision for leave salary and air passage 68,869 73,484

2,006,071 1,812,099

19. Employees’ terminal benefits

Local employees

The contributions made by the Company towards the pension scheme for Bahraini nationals administered by the Social Insurance Organisation in the Kingdom of Bahrain for the year ended 31 December 2016 amounted to BD99,576 (2015: BD88,113).

Expatriate employees

The movement in leaving indemnity liability applicable to expatriate employees are as follows:

31 December2016

31 December2015

Opening balance 153,859 131,568Accruals for the year 18,365 22,291Payments during the year (17,455) -Closing balance 154,769 153,859Number of staff employed by the Company 77 73

20. Share capital

31 December2016

31 December2015

Authorised share capital100,000,000 shares of 100 fils each (2015: 100,000,000 shares of 100 fils each) 10,000,000 10,000,000

Issued and fully paid-up share capital 61,886,633 shares of 100 fils each(2015: 61,886,633 shares of 100 fils each) 6,188,663 6,188,663Treasury shares 3,724 3,724

During the year, the Company received a letter of intent from Solidarity Group Holding B.S.C.(c) for their interest in acquiring a majority stake in the issued share capital of the Company. As a result subsequently Solidarity Group Holding B.S.C.(c) acquired 71.46% shareholding of the Company.



20 Share capital (continued)

Additional information on shareholding pattern

i) The names and nationalities of the major shareholders, holding shareholding interest of 5% or more and the number of shares at 31 December 2016 and 2015 are as follows:

31 December 2016

Nationality Numberof shares

Percentageof holding

interestSolidarity Group Holding B.S.C (closed) Bahrain 44,226,357 71.46%Taqi Mohamed Al Baharna Bahrain 3,560,160 5.75%Others Various 14,100,116 22.79%

61,886,633 100%

31 December 2015

Nationality Numberof shares

Percentageof holding

interestDamac Invest Co. (L.L.C.) United Arab Emirates 24,035,714 38.84%Mustafa Ahmed Salman Oman 5,312,017 8.58%Taqi Mohamed Al Baharna Bahrain 3,560,160 5.75%Others Various 28,978,742 46.83%

61,886,633 100%

ii) The Company has only one class of equity shares and the holders of the shares have equal voting rights.

iii) The distribution of the Company’s equity shares, i.e. the number of holders and their percentage shareholding as at 31 December 2015 and 2016 is set out below:

31 December 2016

Numberof shareholders

Numberof shares

Percentageof total

outstandingshares

Less than 1% 2,198 12,830,325 21%More than 1% up to less than 5% 1 1,269,791 2%More than 5% 2 47,786,517 77%

2,201 61,886,633 100%

31 December 2015

Numberof shareholders

Numberof shares

Percentageof total

outstandingshares

Less than 1% 2,359 20,369,352 33%More than 1% up to less than 5% 7 8,609,390 14%More than 5% 3 32,907,891 53%

2,369 61,886,633 100%



20. Share capital (continued)

iv) Details of the directors’ interests in the Company’s shares are as follows:

Name of the directorsNumber of shares

2016 2015Dr Osama Taqi Al Baharna 242,527 242,527Adel Hassan Alaali 187,110 187,110Sofyan Adnan Khatib - 206,289

429,637 635,926

21. Statutory reserve

As required by the Bahrain Commercial Companies Law Decree number 21 of 2001, an amount equivalent to 10% of the Company’s net profit for the year has been transferred to the statutory reserve. The Company may resolve to discontinue such annual transfers when the reserve equals 50% of the paid-up share capital of the Company. The reserve cannot be utilised for the purpose of distribution, except in such circumstances as stipulated in the Bahrain Commercial Companies Law Decree Number 21 of 2001. During the year, the Company has transferred BD3,181 to the statutory reserve for the year ended 31 December 2016(2015: BDNil).

22. Fair value reserve

Investment fair value reserve

The fair value reserve includes the gains and losses arising from changes in fair value of available-for-sale investments and is recognised in the statement of other comprehensive income. During the year, net movement in investment fair value reserve of BD693,220 (2015: BD617,285) was recorded.

Property revaluation reserve

The fair value reserve includes the net surplus arising on revaluation of freehold land (Note 14). This reserve is not available for distribution.

23. Directors’ remuneration and dividends

Directors’ remuneration

Proposed by the Board of Directors

The Board of Directors of the Company do not propose to pay any directors’ remuneration for the year ended 31 December 2016 (2015: BDNil). This is subject to the approval of shareholders in the Annual General Meeting.

Dividends

Declared and paid

No dividend was declared or paid for the year ended 31 December 2015 (2015: BD2,473,976 representing 40% for the year ended 31 December 2014, declared and subsequently paid) in the Annual General Meeting of the shareholders held on 30 March 2016.

Proposed by the Board of Directors

The Board of Directors of the Company do not propose to pay any dividend for the year ended 31 December 2016 (2015: Nil). The proposed dividend only becomes payable once it has been approved by the shareholders in the Annual General Meeting and, accordingly, the proposed dividend has not been accounted for in these financial statements.



24. Segmental underwriting results

The Company’s insurance business is organised into four main business segments as follows:

• Fire, general accident and engineering• Marine cargo, marine hull and aviation• Life and medical expense cover• Motor - Third party liability and comprehensive

31 December 2016Fire andGeneral Accident

and Engineering

Marine andAviation

Life andMedical Motor Total

Gross premiums 2,080,240 693,929 4,539,949 6,214,896 13,529,014Reinsurance ceded (1,889,281) (656,846) (1,882,769) (372,922) (4,801,818)Retained premiums 190,959 37,083 2,657,180 5,841,974 8,727,196Adjustment in unearned premium 36,356 9,879 99,828 (363,167) (217,104)Net premiums earned 227,315 46,962 2,757,008 5,478,807 8,510,092Net earned commissionincome/(expense) 312,814 110,425 6,643 (226,413) 203,469Net claims incurred (17,690) (9,496) (2,599,449) (4,010,027) (6,636,662)Management expenses (94,241) (31,437) (205,673) (281,554) (612,905)Provision on insurance receivables - - - - (67,051)Underwriting profit for the year 428,198 116,454 (41,471) 960,813 1,396,943Loss ratios (8%) (20%) (94%) (73%) (78%)Identifiable assets 2,705,817 287,312 2,185,908 641,085 5,820,122Identifiable liabilities 3,170,157 207,462 2,572,080 6,869,372 12,819,071

Assets amounting to BD24,006,105 and liabilities amounting to BD3,328,517 are not specifically identifiable with general and life insurance business.



24. Segmental underwriting results (continued)

31 December 2015Fire andGeneral Accident

and Engineering

Marine andAviation

Life andMedical Motor Total

Gross premiums 2,024,706 900,112 2,636,908 5,364,692 10,926,418Reinsurance ceded (1,778,873) (847,808) (1,943,037) (435,830) (5,005,548)Retained premiums 245,833 52,304 693,871 4,928,862 5,920,870Adjustment in unearned premium (36,543) (5,327) (61,670) (288,853) (392,393)Net premiums earned 209,290 46,977 632,201 4,640,009 5,528,477Net earned commissionincome/(expense) 511,290 139,127 23,902 (155,820) 518,499Net claims incurred (102,699) (1,296) (476,723) (3,482,971) (4,063,689)Management expenses (115,061) (43,583) (134,586) (256,905) (550,135)Provision on insurance and re-insurance receivables - - - - (10,734)Underwriting profit for the year 502,820 141,225 44,794 744,313 1,422,418Loss ratios (49%) (3%) (75%) ( 75%) (74%)Identifiable assets 840,905 251,125 409,771 212,312 3,492,122Identifiable liabilities 1,968,217 279,069 1,805,710 5,874,353 9,927,349

Assets amounting to BD22,675,117 and liabilities amounting to BD3,286,279 are not specifically identifiable with general and life insurance business.

25. Net investment and other income

Year ended 31 December

2016


2015Dividend income 343,100 372,220Interest income 114,360 179,321

457,460 551,541

26. General and administrative expenses


2016


2015Employee related costs 639,946 616,009Administrative and other costs 263,704 199,885Provision for doubtful deposits 52,546 -Depreciation 15,708 9,308

971,904 825,202



27. Earnings /(loss) per share


2016


2015Net profit/(loss) for the year 31,808 (622,699)Weighted average number of shares outstanding 61,840,217 61,840,217Basic and diluted earnings/(loss) per 100 fils share 0.51fils (10.07fils)

The earnings per share has been computed on the basis of net profit for the year divided by the number of shares outstanding for the year, net of 46,416 treasury shares. The Company does not have any potentially dilutive ordinary shares, hence the diluted earnings per share and basic earnings per share are identical.

28. Related party balances and transactions

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 and operating decisions. Related parties include entities over which the Company exercises significant influence, major shareholders, directors and executive management of the Company. The Company’s transactions with related parties are on arm’s length basis and authorised by the management.

A summary of the significant transactions with related parties is as follows:

Related party relationship Year ended 31 December

2016


2015Premium earned Directors 31,664 50,114Claims incurred Directors 4,197 234,067

The policyholder and other receivables respectively include the amount due from related parties as at 31 December 2016 amounting to BD35,858 (2015: BD47,115) and BD30,000 (2015: BDNil), relating to directors remunerations for the year ended 31 December 2015, as proposed by the shareholders in the Annual General Meeting on the 30 March 2016 and however, that did not succeed MOIC approval . The Company has taken appropriate measures to regularise the transactions.

Other payables includes amount due to a related party as at 31 December 2016 amounting to BD5,523(2015: BD791).

29. Insurance contracts, financial instruments and risk management

The risks involved in the business activities and the Company’s approach to managing such risks is elaborated below:

• Insurance risk management• Financial risk management ® Market risk: - Currency risk - Interest risk - Price risk ® Credit risk ® Liquidity risk ® Other risks: - Regulatrory risk - Legal risk• Capital management• Fair value measurement



29. Insurance contracts, financial instruments and risk management (continued)

This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and processes for measuring and managing risk, and the Company’s management of capital. Further quantitative disclosures are included throughout these financial statements.

The Board of Directors have overall responsibility for the establishment and oversight of the Company’s risk management framework and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Company’s finance function. The Board receives monthly reports from the Company’s Financial Controller through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets.

The overall objective of the Board is to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits.

(i) Insurance risk management

Insurance risk comprises the possibility that an insured event occurs, and the uncertainty of the amount of the resulting claim. By the very nature of an insurance contract, this risk is random and, therefore unpredictable. The primary risk that the Company faces under such contracts is that the actual claims and benefits payments exceed the carrying amount of insurance liabilities.

The primary risk control measure in respect of insurance risk is the cession of the risk to third parties via reinsurance, including excess of loss protection programme. Reinsurance business ceded is to a number of international reputable third party insurers on a proportional basis with retention limits, varying by lines of business and geographical areas. The Company is not dependent on a single reinsurer or a reinsurance contract.

In addition, insurance risk is mitigated by:

• The Company’s diverse portfolio of insurance contracts. Accordingly, the Company is less likely to be adversely affected by a single unexpected event.

• The Company’s binding (underwriting and retention) guidelines and limits, and the underwriting authorities’ control over who is authorised and accountable for concluding insurance and reinsurance contracts. Compliance with these guidelines is closely monitored by the management. Developments in the global and local markets are also monitored closely and where necessary appropriate changes are made to the Company’s policy and guidelines to reflect current best practices.

• All the Company’s insurance contracts contain specific liability limits.




(i) Insurance risk management (continued)

Claims development

The development of gross insurance liabilities provides a measure of the Company’s ability to estimate the ultimate value of claims. The following table illustrates the Company’s estimate of total claims outstanding for the years 2011 to 2016:

Underwriting years 2011 2012 2013 2014 2015 2016 TotalEstimate of ultimateclaims:At end of each reporting year 4,112,917 6,885,832 7,285,225 7,242,907 6,476,010 10,190,360 42,193,251One year later 4,820,148 6,701,931 7,378,563 6,351,397 6,544,932 - 31,796,971Two years later 4,782,250 6,974,940 7,315,296 6,407,226 - - 25,479,712Three years later 4,586,430 7,044,738 7,164,292 - - - 18,795,460Four years later 4,506,590 7,041,733 - - - - 11,548,323Five years later 4,128,301 - - - - - 4,128,301Estimate ofcumulative claims 4,128,301 7,041,733 7,164,292 6,407,226 6,544,932 10,190,360 41,476,844Less: Cumulativepayments to date (3,945,465) (6,707,198) (6,541,337) (5,924,038) (5,793,310) (7,116,845) (36,028,193)Liability recognisedin the statement offinancial position 182,836 334,535 622,955 483,188 751,622 3,073,515 5,448,651Add: Claims Incurred but not record in respect of 2016 507,952Add: Claims in respect of years prior to 2010 528,136

At 31 December 2016 6,484,739

Claims in respect of years prior to 2011 are pending completion subject to receipt of all the necessary documentation. These claims are substantially reinsured at 31 December 2016.

Reinsurance risk

Although the Company has reinsurance arrangements, it is not relieved of its direct obligations to its policy holders and thus a credit risk exposure remains with respect to reinsurance ceded to the extent that any reinsurer is unable to meet its obligations under such reinsurance arrangements. The Company reinsures business only with parties that have good credit ratings; such credit ratings are reviewed on a regular basis.A geographical analysis of the Company’s reinsurance exposure at 31 December is provided below:

Geographical region

31 December2016

31 December2015

Middle East 1,767,015 1,126,707Europe 641,930 391,604Rest of the world 320,964 195,802

2,729,909 1,714,113

The five largest reinsurers account for 85% of the maximum credit exposure at 31 December 2016 (2015: 81%).



29. Insurance contracts, financial instruments and risk management (continued) (i) Insurance risk management (continued)

Outstanding claims recoverable from reinsurers under each business segment 31 December

201631 December

2015Fire, general accident and engineering 1,917,341 965,530Marine and aviation 100,828 129,268Life and medical 403,493 407,003Motor 308,247 212,312

2,729,909 1,714,113

(ii) Financial risk management

Financial instruments consist of financial assets and financial liabilities.

Financial assets of the Company include cash and bank balances, statutory deposits, available-for-sale investments and receivables from policyholders, insurance and reinsurance companies.

Financial liabilities of the Company include payables and other liabilities to policyholders, insurance and reinsurance companies and other parties.

The Company does not use any derivative financial instruments.

The table below sets out the company’s classification of each class of financial assets and liabilities, and their fair values.

2016 Available- for-sale

Loans andreceivables

Otheramortised

cost

Totalcarrying

value

Fairvalue

Cash and bank balances - 10,439,741 - 10,439,741 10,439,741Statutory deposit - 125,000 - 125,000 125,000Available-for-sale investments 6,592,510 - - 6,592,510 6,592,510Receivables - 5,965,135 - 5,965,135 5,965,135Reinsurer’s share of outstanding claims - 2,729,909 - 2,729,909 2,729,909Total financial assets 6,592,510 19,259,785 - 25,852,295 25,852,295Outstanding claims - - 6,484,739 6,484,739 6,484,739Insurance payables - - 1,167,677 1,167,677 1,167,677Other liabilities - - 998,353 998,353 998,353Total financials liabilities - - 8,650,769 8,650,769 8,650,769




(ii) Financial risk management (continued)

2015 Available- for-sale

Loans andreceivables

Otheramortised

cost

Totalcarrying

value

Fairvalue

Cash and bank balances - 8,464,147 - 8,464,147 8,464,147Statutory deposit - 125,000 - 125,000 125,000Available-for-sale investments 8,084,020 - - 8,084,020 8,084,020Receivables - 5,115,346 - 5,115,346 5,115,346Reinsurer’s share of outstanding claims - 1,714,113 - 1,714,113 1,714,113Total financial assets 8,084,020 15,418,606 - 23,502,626 23,502,626Outstanding claims - - 5,012,236 5,012,236 5,012,236Insurance payables - - 1,320,321 1,320,321 1,320,321Other liabilities - - 1,057,672 1,057,672 1,057,672Total financials liabilities - - 7,390,229 7,390,229 7,390,229

Market Risk

Market risk is the risk that the value of a financial instrument will fluctuate due to changes in currency rate, interest rate, and equity price risk. The Company closely monitors the market forces and suitably revises the strategy to minimize the market risk

Currency rate risk

Currency rate risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates.

The Bahrain Dinar is effectively pegged to the United States Dollar, thus currency rate risk occurs only in respect of other currencies. The Company does not hedge against such currency rate risks.

The table below summarises the exposure to currency rate risk excluding assets and liabilities arising from insurance and reinsurance contracts.

Net open positions (in Bahrain Dinar equivalent) 31 December

201631 December

2015United States Dollars 779,120 758,920Singapore Dollar 325,480 302,480Iraqi Dinars 577,785 693,686Other GCC currencies 4,910,125 6,328,934

6,592,510 8,084,020

The analysis calculates the effect of a reasonably possible movement of the Bahrain Dinar against Iraqi Dinars, Singapore Dollar with all the other variables held constant in the statement of profit or loss. Foreign exchange sensitivity analysis is as follows:Currency Change Impact on profitIraqi Dinars +/-5% +/- 28,889Iraqi Dinars +/-3% +/- 17,334Singapore Dollar +/-5% +/- 16,274Singapore Dollar +/-3% +/- 9,764



29. Insurance contracts, financial instruments and risk management (continued) (ii) Financial risk management (continued)

Market Risk (continued)

Interest rate risk

Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates.

The Company invests in bonds that are subject to interest rate risk. Interest rate risk to the Company is the risk of changes in market interest rates reducing the overall return on its interest-bearing securities. The Company limits interest rate risk by monitoring changes in interest rates in the currencies in which its cash and investments are denominated. The impact of any change in the market interest rates on the profits of the Company is not expected to be material by management.

Price risk

Price risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices, whether those changes are caused by factors specific to the individual security, or its issuer, or factors affecting all securities traded in the market.

The Company is exposed to market risk with respect to its investments in equities, managed funds and bonds.

The Company limits market risk by maintaining a diversified portfolio and by continuous monitoring of developments in international equity and bond markets. In addition, the Company actively monitors the key factors that affect stock market movements, including analysis of the operational and financial performance of investees.

Geographical concentration of investments

31 December2016

31 December2015

Kingdom of Bahrain 1,650,000 1,650,000Middle East 4,942,510 6,434,020

6,592,510 8,084,020

Investment fair value sensitivity analysis is as follows:

Description Change Impact on equityAvailable for-sale-investment +/-5% +/- 329,625Available for-sale-investment +/-10% +/- 659,251

Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company adopts policies and procedures in order to maintain credit risk exposures within limits. These limits have been set on the basis of the types of exposures and the credit rating of the counter party and hence the Company is of the opinion that no credit loss will occur. Substantially all of the Company’s underwriting activities are carried out in the Kingdom of Bahrain.




(ii) Financial risk management (continued)

Credit risk (continued)

Further, a significant portion of the Company’s cash and bank balances, time deposits and investments are placed with institutions in the Kingdom of Bahrain and Europe. Credit risk on premiums receivable is limited to policyholders in Bahrain. Credit risk on insurance balances receivable is substantially on major reinsurance companies located in the Arabian Gulf States, Middle East and Europe.

Liquidity risk

Liquidity risk is the risk that an enterprise will encounter difficulty in raising funds to meet commitments associated with financial liabilities. Liquidity requirements are monitored on a regular basis and management ensures that sufficient funds are available to meet any commitments and liabilities as they arise.

The Company does not have any long-term borrowings. Other financial liabilities are due for payment within 12 months of the statement of financial position.

Other risks

Regulatory risk

Regulatory risk is the risk of non-compliance with regulatory and legal requirements in the Kingdom of Bahrain. The Company’s Compliance Department is currently responsible for ensuring all regulations are adhered to.

Legal risk

Legal risk includes the risk of unexpected losses from transactions and/or contracts not being enforceable under applicable laws or from unsound documentation. The Company deals with several external law firms to support it in managing the legal risk.

(iii) Capital management

The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board of Directors monitors the return on capital, which the Company defines as net operating income divided by total shareholders’ equity. The Company’s objectives for managing capital are:

• to safeguard the entity’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, and • to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.

The Company is supervised by regulatory bodies that set out certain minimum capital requirements. It is the Company’s policy to hold capital as an aggregate of the capital requirement of the relevant supervisory body and a specified margin, to absorb changes in both capital and capital requirements.

The Company manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. There were no significant changes in the Company’s approach to capital management during the year.

In addition the Company maintains adequate capital and solvency margin as determined by the provisions of Capital Adequacy Module of the Insurance Rulebook Volume 3.



29. Insurance contracts, financial instruments and risk management (continued) (iv) Fair value measurement

Fair value is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Financial instruments not measured at fair value on recurring basis include insurance and other receivables excluding prepayments, cash and bank balances, statutory deposits and insurance and other payables. In the opinion of the management, due to the short-term nature of these financial instruments, the fair value of these financial instruments is not significantly different from their carrying amounts as at 31 December 2016.

The following table sets out the fair value hierarchy of financial instruments measured at fair value on recurring basis along with valuation techniques and significant unobservable imputes used in determining the fair value measurement of financial instruments as well as the inter-relationship between observable inputs and fair value:

Fair value at 31

December 2016

Level of hierarchy

Valuation technique used and key inputs

Significant unobservable

inputs

Inter-relationship between

unobservable inputs and fair

value

Land –property,plant andequipment

800,000 L3

Independent valuation reports obtained in 2012 and as per management the carrying value is not materially different from fair value

Current market rates and rate per sq.mtr

Higher the rate per sq.mtr, the higher the fair market value

Available-for-sale investments 4,938,310 L1 Quoted prices from

stock exchanges Not applicable Not applicable

Unquoted available-for-sale investments

1,654,200 L3

Net assets value of the investee company and also considering the dividend received during the year

Expected exit rates, expected future cash flows, net assets and expected profits based taking into account management knowledge and experience of market conditions similar to industry trends.

The higher the future cash flows or profits the higher the fair value of net assets and eventually higher exit rates.



29. Insurance contracts, financial instruments and risk management (continued) (iv) Fair value measurement (continued)

Fair value at 31

December 2015

Level of hierarchy

Valuation technique used and key inputs

Significant unobservable

inputs

Inter-relationship between

unobservable inputs and fair

value

Land 800,000 L3

Independent valuation reports obtained in 2012 and as per management the carrying value is not materially different from fair value

Current market rates and rate per sq.mtr

Higher the rate per sq.mtr, the higher the fair market value

Available-for-sale investments 6,429,820 L1 Quoted prices from

stock exchanges Not applicable Not applicable

Unquoted available-for-sale investments

1,654,200 L3

Net assets value of the investee company and also considering the dividend received during the year

Expected exit rates, expected future cash flows, net assets and expected profits based taking into account management knowledge and experience of market conditions similar to industry trends.

The higher the future cash flows or profits the higher the fair value of net assets and eventually higher exit rates.

There are no transfers between levels during the year.

30. Contingent liabilities and commitments

The Company is a defendant in a number of cases brought by policy holders in respect of claims which the Company disputes. While it is not possible to predict the eventual outcome of such legal actions, the directors have made provisions which, in their opinion, are adequate. There are no commitments as at the statement of financial position date (2015: BDNil).

31. Subsequent events

There were no significant events subsequent to 31 December 2016 and occurring before the date of signing of the financial statements that would have a significant impact on these financial statements.

32. Comparative figures

Certain comparative figures of the previous year have been reclassified, wherever necessary, to conform with the current year’s presentation. Such regrouping does not affect net worth or net profit for the previous year.

Documents

YOUR TRUSTED INSURER · in Transaction Banking, beginning with Citibank in 1984, and held a variety of senior positions with Citibank, working in different countries worldwide. Hani