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Contents: Page

General Information, Vision, Mission & Values 1-2

Chairman’s Report to the Shareholders 3-6

Management Statement 7

Board of Directors Profile 8-12

Executive Management 13-16

Management Review of Operations 17-19

Corporate Social Responsibility 20

Report of the Shari’a Supervisory Board 21

Consolidated Financial Statements & Notes 22-78

Solidarity Annual Report_230x300mm_1 New.indd 1Solidarity Annual Report_230x300mm_1 New.indd 1 3/22/10 11:01:05 PM3/22/10 11:01:05 PM

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Commercial registration 50973

Corporate office Administrative officeSeef Tower 11th floor 3rd Floor Seef District Chamber of Commerce BuildingP.O.Box 18668, Manama P.O.Box 18668, ManamaKingdom of Bahrain Kingdom of BahrainTelephone: 17585222 Telephone: 17578777Fax: 17585200 Fax: 17578787

Board of Directors Khalid Abdullah-Janahi ChairmanRashid Ismaeel Al Meer Vice Chairman and Chairman of Audit CommitteeMohamed Hussain Director and Chairman of Executive CommitteeZiad Hasan Al Rawashdeh Director and Chairman of Nomination and Remuneration CommitteeSalah Mohammed Jaidah Director and Member of Executive CommitteeJames Beltran Independent Director and Member of Audit CommitteeMohammed Bucheeri Director and Member of Executive Committee and Nomination and Remuneration CommitteeMansour Mohamed Al Musleh Director and Member of Audit CommitteeUdo R. Krueger Director

Sharia Supervisory BoardShaikh Dr. Abdul Satar Abu Guda ChairmanShaikh Nizam Mohammed Saleh Yaqoobi Executive MemberShaikh Mohsin Shaikh A.Hussain Al Asfoor Member

Secretary to the Board Dr. Abdul Aziz Abul

Management Ashraf Bseisu Acting Chief Executive OfficerGopinath Rao General Manager - Solidarity Family Takaful & Acting General Manager - Solidarity General TakafulJawad Mohammed Deputy General Manager - Business Development - Solidarity Group HoldingM.Venkatesan Chief Financial Officer - Solidarity Group Holding

Bankers Shamil Bank of Bahrain, Kingdom of Bahrain

Auditors KPMG Fakhro PO Box 710 Kingdom of Bahrain

General Information


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Vision, Mission& Values

VisionSolidarity’s vision is to be a leading international Islamic-oriented financial services group generating superior returns to shareholders.

MissionSolidarity’s mission is to provide a range of Sharia compliant protection, savings and investment products with quality customer service.

ValuesAs a responsible corporate member of the communities it serves, Solidarity values (in alphabetical order):

• Innovation

• Integrity

• Social Responsibility

• Teamwork & Partnership

• Transparency


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Chairman’s reportto the shareholders for the year ended 31 December 2009

In the name of Allah, most Gracious, most Merciful.

On behalf of the Board of Directors, it is my pleasure to present the seventh annual report of Solidarity Group Holding BSC (c) (formerly known as Solidarity Company BSC(c)) and its subsidiaries for the year ended 31 December 2009. During the year, the parent company received approval from the Ministry of Industry & Commerce (MOIC) and the Central Bank of Bahrain (CBB) to be restructured as a Holding company in accordance with the Commercial Companies Law. Accordingly the parent company is now registered as a Holding Company under MOIC. However, the parent company is still subject to oversight by the CBB as a controller of its CBB licensed and regulated insurance entities in Bahrain.

Solidarity has done well in 2009 in its home market as the operations in Bahrain have developed further and established a notable market share.

General Takaful OperationsThe performance of General Takaful operations is summarised below:

2009 2008

US$’000 US$’000

Gross contributions

Non-marine 11,053 7,523

Marine 465 511

Motor 9,439 5,965

Total 20,957 13,999

The gross contributions increased by 50% from US$14.00 million in 2008 to US$20.96 million in 2009. The operations continue to show remarkable growth since commencement of operations in Bahrain in 2004. The Company has achieved this growth by acquiring the insurance programme of major clients like Gulf Petrochemical Industries Company (GPIC) as well as through enhanced market penetration using diverse distribution channels.

Family Takaful OperationsThe performance of Family Takaful operations is summarised below:

2009 2008

US$’000 US$’000

Gross contributions

Life Protection contributions 3,188 3,693

Investments & Savings contributions 5,144 4,613

Group Life & Medical 11,136 9,253

Total 19,468 17,559

The Gross contributions increased by 11% compared to 2008. The Family Takaful Business in Bahrain has achieved a sizeable market share in Group Life & Medical portfolios.

The summary of the financial results of Shareholders book for the year is as follows:

2009 2008

US$’000 US$’000

Wakala, Management and other fees 5,209 5,579

Investment income 4,398 3,421

Income from associate and jointly controlled entities 1,450 (61)

Advisory and other income 443 1,327

Total revenue 11,500 10,266

Total Expenses excluding provisions 11,536 15,153

(Loss) before provisions (36) (4,887)

Impairment provisions 7,206 14,330

(Loss) for the year (7,242) (19,217)

Income tax expense (1) (9)

(Loss) for the year after tax (7,243) (19,226)

Shareholders’ equity 228,262 236,966


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The Group showed good turn around during 2009 despite continued global economic meltdown and an extremely challenging operational environment. The Group achieved an operational break even point during 2009; however, the creation of conservative and prudent exceptional investment provisions to the extent of US$7.20 million has resulted in a loss of US$7.24 million for the year ended 31.12.2009. Most of these provisions relate to re-valuation of real estate properties across geographies; given the slow paced yet steady improvement in the world economy, likely future pick up in values can easily result in the reversal of these provisions to the benefit of the Group.

The performance of the Group and its brand equity, strengths and capabilities as a leading takaful operator has been duly recognized by its peers and clients. Solidarity was the recipient of the 2010 Gulf Insurance Award, hosted by Gulf Insurance Review Magazine. The award is a testimony to the efforts of the company in enhancing its brand image in offering value added Sharia’ compliant takaful services and in reinforcing our strong commitment to our customers.

On the regional and international fronts, the Group continued its strategic positioning and consolidation, especially in the markets of Jordan, Saudi Arabia, Malaysia and Egypt.

During the year, the Group worked towards further reinforcing its position in First Insurance Company, Jordan by increasing its stake from 19% to 26%; where the company has become an associate of Solidarity Group.

Solidarity Family Takaful Egypt (SFTE), a wholly owned subsidiary, commenced operations in 2009 and the initial response and business momentum are very encouraging.

The Group’s joint venture, Solidarity Saudi Takaful Company (under formation) in the Kingdom of Saudi Arabia has received approval for incorporation by the Council of Ministers, and is well in progress towards final set up.

MAA Takaful, the Group’s joint venture in Malaysia, one of the largest and most sophisticated Takaful markets in the world, reached a major milestone in its development by breaking even in 2009 in only its 2nd year of full operations.

Corporate GovernanceSolidarity Group is controlled through the Board of Directors. The Board’s main role is to provide entrepreneurial leadership, approve strategic policies, plans and objectives and ensure that the necessary financial and other resources are made available to meet those objectives. The Board has accordingly formed three sub-committees in order to assist it in the discharge of its duties; namely: The Executive Committee, the Audit Committee, and the Remuneration & Nomination Committee. The roles and responsibilities of these committees have been defined by the Board in line with best international practice.

The Executive Committee consists of the following members:

• Mohamed Hussain CHAIRMAN

• Mohammed A. Rahman Bucheeri

• Salah Mohammed Jaidah

The Audit Committee consists of the following members:

• Rashid Ismaeel Al Meer CHAIRMAN

• James Beltran

• Mansour Mohamed Al Musleh

The Nomination and Remuneration Committee consists of the following members:

• Ziad Hasan Rawashdeh CHAIRMAN (from 14 January 2010)

• Udo R. Krueger CHAIRMAN (upto 04 November 2009)

• Mohammed A. Rahman Bucheeri

The Board met four times, the Board Executive Committee five times, the Audit Committee four times, and the Nomination and Remuneration Committee met five times during the year 2009.

Following the early retirement during the year of the Group’s CEO Mr. Sameer Al Wazzan, the Group is now headed by Group Acting CEO, Mr. Ashraf Bseisu who is in-charge of the day-to-day management of the operations and affairs of the Group. The


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Group has formed a Business Management Committee, consisting of the Acting CEO, the Chief Financial Officer, the DGM – Business Development, the Head of Asset Management & Investments and the General Managers of Solidarity Family Takaful and Solidarity General Takaful, to oversee the Group’s operations and facilitate decision making.

As at the end of the year, the operations of the Group consisted mainly of (a) the provision in Bahrain of General and Family Takaful through its two operating and fully-owned subsidiaries: Solidarity General Takaful and Solidarity Family Takaful and (b) of strategically investing internationally in Takaful insurance companies in promising markets such as Saudi Arabia, Malaysia, Jordan, and Egypt where the subsidiaries’ technical expertise and the Group’s central resources of Corporate Finance, IT, Asset Management and Investments and Internal Audit can be leveraged to provide a competitive edge to these international operations and to generate additional income for the group.

Risk Management Strategies & PracticesThe Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management framework. The Business Management Committee, under the chairmanship of the Acting Chief Executive Officer is responsible for developing and monitoring the Group's risk management policies. These policies were established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls to monitor compliance and to provide regular reporting to the Board of Directors on Risk Management strategies and practices. The Group’s risk management policies and systems are reviewed on an ongoing basis to reflect changes in market conditions and the Group's activities.

The Board Executive Committee monitors the investment risks continuously and takes appropriate steps to minimise market and currency exposures. The Group's investment policy is widely diversified to provide stable and sustainable investment returns.

Internal control risks are mitigated by putting in place adequate internal control systems and testing them on a frequent basis.

The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

Solvency Margin and Capital AdequacyThe Solvency margin and capital adequacy regulations applicable to Group companies under various regulatory authorities have been complied with during the Year 2009. Necessary Qard Hassan (free loan) have been approved and provided to the Takaful funds to meet the solvency margin requirements. In addition, the Group enjoys strong capital adequacy levels that have been established in line with standard norms and methodologies and in full compliance with the CBB regulations.

Future plansSaudi Arabia remains a particularly promising market. It is the largest market in the Arab World – and the Group remains as committed as ever to establishing a long, mutually-rewarding presence there. During the first half of 2010 the Group is planning for the IPO of its joint venture Solidarity Saudi Takaful Company (under formation) and hope to obtain the final operational license from the Saudi Arabian Monetary Agency (SAMA) soon thereafter.

The Group is also planning to further increase its stake in First Insurance Co., Jordan during 2010 and to explore lucrative inorganic growth opportunities in that promising market. MAA Takaful Berhad, the Malaysian associate company of the Group, has firmly established itself as one the leading Takaful players in the Malaysian market, and has performed well over the period; where significant growth in overall revenue and profitability are also expected in 2010.

The Group also looks forward to unlocking the great potential in the Egyptian market through its fully owned subsidiary.

A full review of the financial investments portfolio of the Group will be carried out to streamline this portfolio and optimise its risk/reward profile.

Looking ahead, the Group can now confidently consolidate its earlier growth and continue to explore potentially unique expansion opportunities. The operations in Bahrain are geared for higher levels of growth, stronger market visibility and presence and a solid positioning as a comprehensive provider of Takaful insurance solutions.

On behalf of the Board, management and staff of the Group, I wish to take this opportunity to express my sincere gratitude and appreciation

Chairman’s reportto the shareholdersfor the year ended31 December 2009


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to His Majesty King Hamad Bin Isa Al Khalifa, His Royal Highness Prince Khalifa Bin Salman Al Khalifa, the Prime Minister and His Royal Highness Prince Salman Bin Hamad Al Khalifa, the Crown Prince and Deputy Supreme Commander for their continued guidance, support, and stewardship of the business community at large.

I also wish to extend our sincere thanks to the Governor of the Central Bank of Bahrain and his team, in particular the Insurance Supervision Directorate and to all concerned Government ministries and departments for their continued support and co-operation.

I take this opportunity to convey our thanks to the members of our Sharia Supervisory Board for their guidance and contribution.

Special thanks go to our shareholders, investors, clients and business partners for their backing and guidance during the year. I also express my sincere appreciation to the management and staff of our subsidiaries and associates for their loyalty and dedication.

Khalid Abdulla-Janahi

Chairman



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In the name of Allah, the Most Compassionate, the Most Merciful.

We are pleased to report that despite the continuing ramifications and impact of the global financial crisis, the Group was able to navigate 2009 successfully and with improved results over 2008.The year under review was marked with an increased focus on business consolidation and development. Considerable time and effort were expended to further refine and enhance the positioning and overall operation of our subsidiaries and associates. 2009 persisted as yet another challenging year for the world’s financial institutions; hence we believe that it is important to reflect on the significance of our 2009 achievements.

2009 marked the first full year of operation post the 2008 restructuring of our two main subsidiaries, Solidarity General Takaful and Solidarity Family Takaful. We are pleased to report that both entities have witnessed healthy growth and have further strengthened their positioning in our home market despite the prevailing challenges.

As far as our regional and over-seas operations are concerned, our full fledged subsidiary Solidarity Family Takaful Egypt became fully operational during the year; and we are confident that it will further underpin our presence in the most populous Arab country. We have also reinforced our presence in the Jordanian market where we have further consolidated and increased our stake in our Associate First Insurance Company Plc. In Saudi Arabia, the region’s largest insurance market, the Royal Decree for the establishment of Solidarity Saudi Takaful Company has been granted in July 2009 leading us now to toward the IPO and product approval process, in line with SAMA regulations. We anticipate that the company will commence operations during 2010. In Malaysia, one of the world’s largest Takaful markets, our associate MAA Takaful Berhad exhibited strong business growth and market penetration, as reflected in strong standing among its peers.

These key strategic developments in our home market and throughout our network clearly set the stage for a promising year ahead and we have every reason to be optimistic as we move towards realising our ambitious medium and long-term goals. We continue to be on the look out for expansion opportunities that are within the overall framework of our strategic vision and mission. We look forward to the year ahead with confident and cautious optimism for further progress in our business.

In clear recognition of Solidarity’s strong positioning and standing as a leading regional Takaful player, the company was the recipient

of the “Takaful Operator of the Year” Gulf Insurance Award, hosted by Gulf Insurance Review Magazine, one of the most prominent magazines specializing in the insurance industry in the Gulf. The award recognized Solidarity’s demonstrated commitment to its customers, its innovative product offering and its excellent performance which forms a solid platform for future growth.

These strategic developments are underpinned by equally significant undertaking at the Group level. During the year more emphasis was placed on further strengthening our management and financial monitoring and control of our subsidiaries and associates. Operational and back-office support was further augmented in order to better serve the various entities across the Group. Corporate Governance and Compliance continued to be a priority with the deployment of more dedicated resources; within the structured framework that had been put in place earlier. One of the main achievements of the year was the introduction of a comprehensive Enterprise Risk Management (ERM) framework; in line with the Central Bank of Bahrain regulations and international best practice.

Following from our firm belief that our team of people are our most valuable asset, we continued to focus during 2009 on training and professional development; keeping in mind our firm commitment to further develop and advance Bahraini talent within our Group and the insurance profession at large.

The Group’s overall progress and achievement, which come at trying times for all of us in the financial services industry, would not have been possible without the commitment, dedication, and hard work of the each and every individual member of the Solidarity team. In a period of turbulence, great change and growing competitiveness, everyone has responded to the many challenges facing the Group with increased determination. We thank all our staff for their inspiring spirit of performance and partnership, which has further strengthened our confidence in the Group’s ability to realise its goals and objectives. We would also like to thank our dear friend and colleague Sameer Al Wazzan, who retired during the year, for his valuable contribution.

On behalf of Management

Ashraf BseisuActing Chief Executive Officer

ManagementStatement


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Khalid Abdulla-JanahiChairmanMr. Janahi, who has more than 25 years of banking experience, is the Group Chief Executive of Dar Al-Maal Al-Islami (DMI Trust) and Executive Vice Chairman of Ithmaar Bank and Chairman Faisal Private Bank (Switzerland), DMI Administrative Services, Islamic Investment Company of the Gulf (Bahamas), Solidarity Group and Naseej. He is also a Member of the Board of Directors and Chairman of the Executive Committee of BBK (formerly known as Bank of Bahrain and Kuwait) and member of the Board of Faisal Islamic Bank of Egypt. He is a Member of the Board of the Centre for International Business and Management (CIBAM), University of Cambridge, UK. A Fellow of the Institute of Chartered Accountants in England and Wales, Mr. Janahi holds a BSc. in Computer Science and Accountancy from the University of Manchester, UK.

Rashid Ismaeel Al MeerVice-Chairman & Chairman of Audit CommitteeMr. Al Meer is the Chairman of Solidarity’s Audit Committee. Currently he is the Deputy Chairman & Member of the Executive Committee of Ahli United Bank (Group); Director, Ahli United Bank (UK) plc; Director, (Deputy Chairman) of Esterad Investment Co. and Member of its Investment Committee; Member of the Board of Directors of Social Insurance Organization and Vice-Chairman of its Investment Committee. Formerly, Director General & Member of the Board of the Pension Fund Commission; Member of the Board of the General Organization for Social Insurance (GOSI) and Chairman of its Audit Committee; Formerly, Asst. Undersecretary for Financial Affairs, Ministry of Finance & National Economy; Formerly, Asst. Undersecretary for Economic Affairs, Ministry of Finance & National Economy. Formerly, Director of Investment, Central Bank of Bahrain; Formerly, Head of Statistics Section, Ministry of Health.

Board of directors


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Board of directors

Mohamed HussainDirector and Chairman of Executive CommitteeMr. Hussain, who was appointed Ithmaar Bank Chief Executive Officer in September 2009, has been a Member of the Ithmaar Board of Directors since June 2008. He is also a member of the Bank’s Executive Committee. Mr. Hussain, who has 33 years of banking experience, is responsible for overseeing the Bank’s holdings in subsidiaries, associates and strategic investments, as well as the group’s Treasury, Private Banking and Risk Management. Prior to his current appointment, Mr. Hussain was Chief Executive and Member of The Board of Shamil Bank (Bahrain), which is wholly-owned by Ithmaar Bank. A seasoned banker who joined Shamil Bank in 1998, Mr. Hussain previously held other senior positions at the Bank, including Deputy Chief Executive. He was also General Manager of Islamic Investment Company of the Gulf (E.C.) in Bahrain prior to its merger with Faysal Islamic Bank of Bahrain (E.C.) in 2000. His previous positions included Senior Vice President, Smith Barney Inc. Bahrain; Director, Marketing and Corporate Finance, Bahrain International Bank; and Assistant Vice President, Gulf International Bank. He currently serves on the boards of BBK (formerly known as Bank of Bahrain and Kuwait), Faisal Private Bank (Switzerland), Faysal Bank Limited (Pakistan), Faisal Islamic Bank of Egypt, First Leasing Bank, Solidarity, Naseej and Ithraa Capital (Kingdom of Saudi Arabia). Mr. Hussain, a Bahraini National, holds a Bachelor of Arts degree in Economics and Finance.

Ziad Hasan RawashdehDirector & Chairman of Nomination & Remuneration CommitteeMr. Rawashdeh, who has more than 30 years of banking experience, is the Group Chief Operating Officer of DMI, Vice Chairman of Faisal Private Bank (Switzerland) SA and Vice Chairman of Islamic Investment Company of the Gulf (Bahamas). He is a Board Member of Solidarity and Faisal Islamic Bank of Egypt. He is also Chairman or a Board Member of several other DMI Group subsidiaries. Previous positions include Chief Executive Officer of Faisal Private Bank (Switzerland) SA and Managing Director of Islamic Investment Company of the Gulf (Bahamas) as well as several key positions within the DMI Group and at other financial institutions. A Fellow of the Arab Institute for Banking and Financial Studies, Mr. Rawashdeh holds a Bachelor of Science degree in Economics.


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Salah Mohammed JaidahDirector and Member of Executive Committee Salah Mohammed Jaidah has been the Qatar Islamic Bank (QIB) Chief Executive Officer since June 2005. He also holds leading positions in QIB affiliates: Board Member and Head of Executive committee Arab Finance House – Lebanon, Board Member Asian Finance Bank – Malaysia, Board Member QINVEST – Qatar, Board Member European Finance House (under establishment) U.K. and Board Member and bank’s representative in Aqar – Qatar. Prior to his current appointment, Mr. Jaidah was, for about four years, the Doha Bank General Manager and, before that, held several senior positions during his 13 year career at the Commercial Bank of Qatar. With about 20 years experience, Mr. Jaidah is recognized as a prominent figure in the banking industry in Qatar. He regularly attends major bank and finance meetings as key speaker. He is also a former member of both the Qatar Chamber of Commerce and Industry and the Qatari Committee in IMF (International Monetary Fund).

James BeltranIndependent Director & Member of Audit CommitteeMr. Beltran is a Member of Solidarity’s Audit Committee. He is responsible for the oversight of various aspects of Melewar, which controls public companies including MAA Holdings and M3nergy (Berhad). He is also involved in the Malaysian Reserve, a financial daily newspaper published in Malaysia. He formerly oversaw operations for MAA International group in Thailand, Indonesia, the Philippines and Labuan Offshore Financial Services Centre, Malaysia. Companies owned or affiliated by shareholding under the group include companies involved in financial services, steel, heavy industry and oil & gas. They include MAA International Assurance (Labuan) Ltd., MAA International Investments (Labuan) Ltd., MAA International Corporation (Labuan) Ltd., MAA General Assurance, Philippines, MAA Mutualife, Philippines, PT MAA Takaful Assurance, Indonesia, PT MAA General Assurance, Indonesia, MAAKK, Thailand, Hatton National Bank, Sri Lanka and HNBA Sri Lanka.

Board of directors


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Mohammed A.Rahman BucheereiDirector & Member of Executive Committee and Nomination & Remuneration CommitteeMr. Bucheerei is the General Manager of the Private Offices of HRH Prince Mohamed Al Faisal Al Saud, Saudi Arabia. Prior to this appointment he worked as Executive Vice President of Shamil Bank of Bahrain. He is Member of the Boards of Shamil Bank of Bahrain, Bahrain, Faysal Bank Limited, Pakistan, Islamic Investment Company of the Gulf (Bahamas) Limited, Overland Capital Group, USA, Silital, Egypt and Solidarity Group, Bahrain. Mr. Bucheerei has around 38 years extensive & diversified experience in accounting, commercial and offshore Banking.

Mansour Mohamed Al MuslehDirector & Member of Audit CommitteeMr. Al Musleh is a Member of Solidarity’s Audit Committee. He is a Member of the Board of Qatar Islamic Bank and Al Jazeera Islamic Company, Chairman of AQAR Real Estate Development and Investment Company and Al Andalus Private Schools and Chairman of Board of Trustees of Mayfair Islamic Centre, London. Mr. Al-Musleh was previously Director of the Qatar Interior Minister’s office and Qatar Armed Force. Mr. Al Musleh also manages investment and real estate companies, as well as equities portfolio of state-owned companies. Mr. Al Musleh holds a B.Sc. Social Science form Qatar University.

Board of directors


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Udo R. KruegerDirector A German national, Mr Kreuger served in several senior positions at Allianz AG Group, one of the world's leading financial services organisations, including as CEO of Allianz AG - Reinsurance branch, Asia Pacific, Managing Director of Allianz Insurance (Singapore) Pte Ltd. and General Manager of Allianz Versicherunges-AG Dubai Branch. Mr. Krueger also served as Member of the Financial Center Advisory Group of the Monetary Authority of Singapore. Formerly, Mr. Krueger served with Lufthansa German Airlines. Mr. Krueger served as CEO of ARIG, Chairman of Arig Reinsurance Company, ARIG UK and Arima Insurance Software.

Board of directors


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Executive Management


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Sitting (left to right)

Rahul Misra, Gopi Rao, Ashraf Bseisu, Jawad Mohammed,Amal Essa Abdulwahab

Standing (left to right)

M. Venkatesan, Samir Rusdy, Chris Walls, Viswaprasad K.C., Youssef Al Kareh, Prakash Bhawnani


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Ashraf BseisuActing Chief Executive Officer, Solidarity Group Holding BSC(c)Mr. Ashraf Bseisu is the President of the General Arab Insurance Federation (GAIF) and the Chairman of the Bahrain Insurance Association (BIA).

Mr. Bseisu has over 20 years of experience in the insurance and financial services sector, where he held several Executive positions like the Director of Strategic Planning, Chief Executive and Chief Financial and Administrative Officer. He also worked for major insurance/reinsurance companies and financial institutions such as Arab Insurance Group (ARIG), and Trust International Insurance Company.

Mr. Bseisu is a member of the board of several companies, financial institutions, and professional bodies. He is the Deputy Chairman of the Arab War Risk Insurance Syndicate (AWRIS); Member of the Executive Council, GCC Coordination Commission for Insurance & Reinsurance Companies; Member of the Board of Trustees of the Human Resources Development Fund of Bahrain; Chairman of Solidarity Takaful S.A., Luxembourg.; Deputy Chairman of First Insurance Company, Jordan; Member of the Board of Directors of MAA Takaful Berhad, Malaysia. He is also on the Advisory Board of the Bahrain Institute of Banking & Finance (BIBF), and an active member of the Young Arab Leaders organization.

Mr. Bseisu is a holder of a Master’s degree from the "London School of Economics”, United Kingdom, and a Bachelors degree from “Southern Methodist University” in the United States of America. He is also an Associate member of the Chartered Insurance institute of the UK, and an Associate member of the American institute of Management Accountants.

Gopi RaoGeneral Manager, Solidarity Family Takaful BSC(c) & Acting General Manager, Solidarity General Takaful BSC(c)Mr. Rao is an insurance professional with more than 39 years of experience. He started his career in India and after a posting in Thailand, moved to this region in 1974. The Gulf countries in which he has been based include the UAE, Oman, Saudi Arabia and Bahrain. He has worked at various levels of management in the insurance field, with a brief foray into reinsurance as well. He is a Chartered Insurer and an Associate Member of the Chartered Insurance Institute.

Jawad MohammedDeputy General Manager, Business Development, Solidarity Group Holding BSC(c)Mr. Jawad has over 14 years of experience in the Insurance domain and Business Management. He holds a Bachelor’s and a Master’s in Computer Science (MSc) and a Certificate in Management (Gulf Executive Development Program) from University of Virginia, Darden School of Business. He joined Solidarity from the inception of the company and previously worked for Bahrain National Holding and Ministry of Education. His main responsibilities at Solidarity are to look after the Business Development across the region as a prominent member of the Business Management Committee and also represent Solidarity Group at the Board level. The other key areas have been managing various functions such as Legal and Compliance, Group IT and PR & Corporate Communication. This involves establishing new business strategies, making policies & procedure and setting up strategic alliance with partners.

M. VenkatesanChief Financial Officer, Solidarity Group Holding BSC(c)Mr. Venkatesan has 24 years of experience in the insurance industry, covering the Finance & Accounting, Internal Audit, Corporate Strategy & Planning, Reinsurance and System Implementation functions. He is a Chartered Accountant by profession and is an Associate Member of the Insurance Institute of India. He joined Solidarity from the inception of the company in 2004 and previously worked for Al Ahlia Insurance, Bahrain and United India Insurance Co. Ltd, India. He is a member and Secretary of the Finance Committee of Bahrain Insurance Association.

Chris WallsAssistant General Manager, Solidarity Family Takaful BSC(c)Mr. Walls has 22 years of marketing management and administration experience in life insurance and investment, the latter six of which he has focused on the Middle East markets. Mr. Walls studied economics and administration at the University of Cape Town, South Africa, as well as marketing management through the South African Institute of Marketing Management. Prior to Solidarity, Chris held senior marketing management posts with Arig-Bahrain, Old Mutual, Guardian and Hollard South African stables.



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Rahul MisraAssistant General Manager, Corporate Business, Solidarity General Takaful BSC(c)Mr. Misra has a Master of Science in Geology from Lucknow University, India. A Fellow of the Insurance Institute of India, an Associate of Chartered Insurance Institute (ACII) and a Chartered Insurance Practitioner, he has 22 years of experience in the insurance field.

Viswaprasad K.C.Asst. General Manager, Underwriting, Solidarity General Takaful BSC(c)Mr. Viswaprasad has a rich knowledge of the industry, with more than 30 years of experience in the general insurance business. Prior to joining Solidarity, Mr Viswaprasad worked with Crescent Global Insurance Services, Bahrain and Royal and Sun Alliance Insurance in Saudi Arabia. He is an ACII (UK), CPCU (USA) and Fellow of the Insurance Institute of India.

Prakash BhawnaniAsst. General Manager, Retail Business, Solidarity General Takaful BSC(c)Mr. Prakash Bhawnani is B.Com, LL.B from Mumbai University [India] and also Fellow of Insurance Institute of India. He has 40 years of Insurance & Reinsurance experience to his credit out of which about 29 years in India. Prior to joining ‘Solidarity’, he worked as Underwriter – Marine with Reinsurance Company - Alea Bahrain for a period of 6 years.

Amal Essa AbdulwahabHead of Human Resources & Services, Solidarity Group Holding BSC(c)Mrs. Abdulwahab has 18 years of HR experience at Gulf Air. She has a Diploma in Business from Gulf Polytechnic, Bahrain and a Certificate in Personnel Practice (CPP) from the Chartered Institute for Personnel Development, UK. She is also a licensed assessor by SHL-UK and a member of the Bahrain Society for Training and Development (BSTD).

Youssef Al KarehHead of Risk Management, Solidarity Group Holding BSC(c)Mr. Al Kareh represents a wide range of experience in the areas of insurance/reinsurance, captive insurance, alternative risk transfer (ART) solutions, risk management and investments. Prior to joining Solidarity, he was a Director of Investment Structuring at an Islamic investment firm in Bahrain. Prior, he was the General Manager of Ensurion, a boutique ART/captive insurance consultancy where he spearheaded the setting up of the first captive insurance company domiciled in the MENA region. Mr. Al Kareh was a senior consultant at MARSH Risk Consulting in London having been a part of its Structured Risk Practice Unit serving blue-chip clients, public companies, and a number of quasi-governmental bodies. Mr. Al Kareh is a Fellow of the Chartered Insurance Institute in London (FCII), a Member of the Securities & Investment Institute (MSI), and an Associate Member of the Association of Corporate Treasurers (AMCT). He holds an MSc in Finance from the ISMA Centre at the University of Reading where he graduated with top distinctions.

Samir RushdySenior Manager SalesMr. Rushdy has more than 27 years of experience in different managerial levels with national and international companies in the fields of sales and marketing management and training. His responsibilities at Solidarity Family Takaful includes business operations and developments. Mr. Rushdy holds a Bachelor of Science in Mechanical Engineering from Alexandria University, Egypt. He is also a qualified, accredited NLP Master practitioner of the Neurolinguistic Programming, Florida, USA and Diploma in Management.


17

Managementreview ofoperations

During 2009, the Group had three key areas of activity; General Takaful, Family Takaful, and Asset Management and Investments. These were supported by centralised Corporate Services covering Human Resources, Information Technology, Legal and Compliance, Finance and Corporate Communications.

General takafulThe Bahrain based subsidiary, Solidarity General Takaful BSC(c), has achieved remarkable results during the year 2009 registering a growth rate of 47% over the previous year 2008. In fact, the company showed a significant growth of 55% in 2008 and the general takaful operations continue to achieve remarkable growth since inception in 2004 and have established a sizeable market presence. This performance is commendable considering the overall regional and local economic conditions during 2009.

The overall strong performance was the result of widened distribution channels, enhanced levels of customer service and a continued investment in technology. The Company has achieved top line growth by acquiring the Gulf Petrochemical Industries Company (GPIC) insurance programme as also through enhanced market penetration using diverse distribution channels. The Company also continues to register surplus in its Policyholder’s Funds. It is an important milestone in the growth of Policyholder’s Funds that reflects the results of prudent underwriting and efficient management of claims and expenses.

The partnership with Chubb, the world’s leading Directors’ and Officers’ Liability insurance continued to break new grounds. The Company achieved success in becoming on the leading providers of this class of business in Bahrain market. Current financial crisis has also seen an increase in the number of inquiries from brokers in UAE, KSA and Oman. It has been able to provide innovative solutions that insure the risk of land reclamation and its subsequent development. The Company has also been able to put together new mortgage property solutions for some of the leading banks in Qatar and Bahrain.

Solidarity General Takaful continued to expand its retail distribution through a mix of brokers and financial institutions. It opened a sales desk at various distributor locations during 2009. The success of implementing a toll free 24x7 service for assisting its motor insurance customers is very much appreciated by customers. This

service includes road side assistance and in the event of a claim, car replacement service.

In order to facilitate the renewal of motor policies and registration at Traffic Department, Solidarity General is one of the few companies that have teamed up with Bahrain Government’s e-gov

initiative where the renewal of insurance is linked with the traffic database for ease of registration. IT plays a crucial role in ensuring the efficiency and effectiveness of the division, and in providing a professional and responsive service. The Company has continued to invest on developing its IT platform making it highly scalable. A notable feature of this platform is that it is web based and can be accessed by brokers, service providers and customers alike. This will help in not only enhancing the service to the customers but increase productivity and reduce cost.

Family TakafulSolidarity Family Takaful BSC(c), Bahrain has continued to achieve impressive results during the year 2009. The gross written contribution for the year amounted to US$16.81 million of which individual takaful policies comprised US$ 3.09 million; savings and investments US$2.63 million; as well as US$11.09 million from group life, credit life and medical policies. Compared to the full year operations of these classes of business in 2008, this represents a growth of 9% (2008 US$15.43 million).

The company provides Family Takaful protection and savings plans, Group Life Takaful and Medical Takaful covers. With this increased market presence, SFT has established itself as a full fledged family takaful and medical takaful provider in the Kingdom. SFT has expanded its distribution channels and modified some product features in order to become more competitive.

The home finance protection reducing term takaful cover marketed under the name “SolidFoundation” continues its success with remarkable growth in contributions during 2009. Group Life Takaful and group medical takaful lines performed well and the policy holders’ accounts of these lines of business showed positive results.

With an encouraging growth in customer base, SFT is poised to develop further both in terms of product range and market share.


18

Managementreview of

gg

operations

While the difficult financial market conditions have meant that the performance of funds offered by us to our savings products customers has been below expectations, our protection products and riders offer a wide range of coverage which provides security in these uncertain times. Our funds performance is expected to improve in line with market conditions and we are, therefore, confident of the long term viability of the products and services offered by SFT.

Asset ManagementSolidarity’s Sharia-compliant portfolio of investments, which covers proprietary investment funds regulated by the CBB, external funds and strategic investments, performed well during the year, with no impairment. As a result, the Company’s Asset Management activities continued to make a sizeable contribution to the Group’s overall income.

The Group’s diversified Fund portfolio, with a well balanced risk profile, comprises mudaraba, leasing, sukuk, real estate, equities and other Islamic instruments. In addition, the Asset Management division continued to manage the Company’s liquidity requirements; monitor the progress of Solidarity’s strategic investments; provide structuring advisory services to support the Company’s ventures and acquisitions; and develop new investment products for policyholders, including bundled products related to takaful and standalone investments such as mutual funds.

Operational ExpansionA number of key developments during 2009 illustrate the ongoing successful implementation of Solidarity’s strategy of geographic expansion. A notable achievement for the Group was the commencement of operations by Solidarity Family Takaful Egypt (SFTE) in Egypt. It is a subsidiary of the Group and has been established with an authorized capital of EGP 250 million of which EGP 60 million is subscribed and EGP 30 million paid up. The company now offers a suite of savings and takaful protection policies including Group Medical and Group Life policies.

Another remarkable achievement was obtaining approval by the Council of Ministers and the Royal decree for formation of our associate company, Solidarity Saudi Takaful Company (SSTC) in Saudi Arabia. SSTC with total authorized and issued capital of SR

555 Million (US$ 148 million) is in the process of undertaking its IPO and being licensed under SAMA regulations. The main Founder shareholders are Solidarity with 27.5% (US$42 million) and the balance from reputed Saudi business houses and families. We expect the company to be operational by mid of 2010.

During 2009, we have increased our Group’s stake from 19% to 26% in First Insurance Company, Jordan. Solidarity has successfully been able to strengthen its positioning in the Jordanian market through this investment. First Insurance Company, Jordan has achieved remarkable results during the year 2009.

Corporate ServicesCompliance

The Company took additional measures during 2009 to ensure full compliance with the rules, regulations and guidelines of the Central Bank of Bahrain and other relevant authorities. Continuous measures were taken to ensure that the Anti-Money Laundering Manual is updated to be in line with the local standards governed by the Financial Crime module of the CBB Rulebook as well as international standards for combating financial crime and terrorist financing governed by the Financial Action Task Force (FATF).

Information Technology

Solidarity has always placed the highest strategic importance on the development and maintenance of a powerful and scalable IT infrastructure with which to support the Company’s current and future business plans. Accordingly, a number of developments took place during 2009 to further strengthen the Company’s core systems.

A major upgrade of the General Takaful system carried out during 2008 has gone live during the year successfully. Many distribution channels have been connected to central IT systems for issuing of policy documents and certificates on-line. The IT systems support the rapid business growth; by transforming the core application system into a web based application, the availability of the system will add another dimension to electronic presence. Additionally, integration with other electronic channels will allow automated business processes, as well as the benefit of business collaboration.


19

Human Resources

In 2009, Solidarity further strengthened its Human Resources capability through a number of significant initiatives and developments. Particular focus was placed on Talent retention, staff communications, and training, together with further enhancing HR processes and procedures.

To enhance the communications between Solidarity’s staff and Management, numbers of staff assemblies have been conducted throughout the year in order to keep staff apprised of Group’s developments.

Solidarity continued to prioritise the provision of training and development for employees to enhance their skills and knowledge, and acquire professional qualifications, in order to progress their careers. During 2009, the Group managed to enrol some employees

to attend short orientation training, academic training, professional development, and internal and external specialized conferences. Specific needs emanating from Talent Pool identifications, as part of the overall Succession Planning program.

The Group also continued to manage and improve the Staff Performance Appraisal and objectives setting section. Further, Solidarity has invested in measuring and quantifying employee opinions and attitudes by releasing the 2nd Employee Satisfaction Survey being a continuous part of the existing HR and organizational fundamental processes, the same completed by all employees in order to benefit from their feedback, find solutions, and ultimately retain and develop the Group’s most vital asset, its employees. The overall feedback received from employees was positive in most of the survey’s area which reflects high level of employee satisfaction.

Managementreview ofoperations


20

In line with its philosophy, Solidarity is committed to contributing to the social and economic well-being of the communities in which it operates. To support this commitment, the Group has developed a comprehensive programme of corporate social responsibility activities. These include financial support for a variety of charitable, educational, social, cultural and sporting organisations and events.

In addition, Solidarity sponsors a wide range of conferences, seminars and other initiatives, which are designed to educate the public and increase awareness of the unique features and benefits of takaful, and also to further enhance the status of the Kingdom of Bahrain as the leading insurance hub of the Middle East. In 2009, the Group’s support for charities focused particularly on helping some of the underprivileged sections of society, such as orphans, and people with hearing and speaking disabilities.

In terms of education, and training and development, Solidarity worked with the Bahrain Institute of Banking and Finance (BIBF) to further develop and enhance individual skills in the Kingdom’s Islamic (takaful) and conventional insurance industry. The Group also cooperated with the Ministry of Labour, BIBF, Bahrain Insurance Association, in a special scheme designed to provide work experience, training and eventual employment for unemployed graduates. In addition, internship and summer work programmes were offered to a number of students at universities in Bahrain. Solidarity further supported and contributed to the Labour Fund (Tamkeen) project of employing qualified graduates, as well as training some existing staff to further develop their competencies towards their career development. Graduates Management Trainee has been accommodated by Solidarity as part of Tamkeen program to develop Bahraini future leaders.

Corporate social responsibility


21

In the name of Allah, The Merciful, The Compassionate

For the financial year ended 31 December 2009

Thanks to Allah, the Almighty, Prayers and Peace be upon the True Messenger, His Relatives and All His Companions.

To the Shareholders and Policyholders of Solidarity Company BSC(c) and its subsidiaries

Assalamu Alaikum Wa Rahmat Allah Wa Barakatuh

In compliance with our appointment to undertake the duties of Shari’a supervision, we hereby submit the following report:

The Shari’a Supervisory Board reviewed all the company’s operations in accordance with the Balance Sheet for the year ended on 31 December 2009. The board has reviewed and confirmed the implementations of the principles and guidelines governing the relationship between the policyholders and shareholder in order to identify the right of each side. Discussions took place with the company’s officers with regard to its items on the attached notes. The Board gave its Shari’a directives for takaful transactions and answered the queries made by the management.

The company’s management is responsible for ensuring that the company conducts its business in accordance with Islamic Shari’a rules and principles. It is our responsibility to form an independent opinion based on our review of the operations of the company and to report to you.

In our opinion:

1. The surplus distribution, charging of losses and expenses to the

policyholders and shareholders fully conforms to the principles

established by ourselves in compliance with Shari’a rules and

principles.

2. There are no gains realized from prohibited sources or

from methods forbidden according to the Shari’a rules and

principles.

3. The calculation of Zakat is in compliance with Islamic Shari’a

rules and principles and as directed by the Shari’a supervisory

board. It should be noted that responsibility for payment of

Zakat is undertaken by the shareholders.

We pray to Allah, the Almighty to grant the Company continued success for purifying Muslim business from suspicions prohibitions.

Assalamu Alaikum Wa Rahmat Allah Wa Barakatuh

Dated 24 Safar 1431H corresponding to 8 February 2010.

Members of the Shari’a Supervisory Board:

Shaikh Dr. Abdul Satar Abu GudaChairman

Shaikh Nizam Mohammed Saleh YaqoobiExecutive Member

Shaikh Mohsin Shaikh Abdul Hussain Al AsfoorMember

Report of the Shari’a Supervisory Board


22

Consolidated Financial Statements & Notesfor the year ended 31 December 2009


23


24

Page

Independent Auditors’ report to the shareholders 25-26

Consolidated statement of financial position 27

Consolidated income statement 28

Consolidated statement of comprehensive income 29

Consolidated policyholders’ takaful fund

statement of financial position 30

Consolidated statement of policyholders’ revenue &

expenses and policyholders’ surplus and deficit

General takaful 31

Family takaful 32

Consolidated statement of changes in

shareholders’ equity 33-34

Consolidated statement of cash flows 35

Notes 36-78

Contents:


25

Solidarity Group Holding BSC (c), Manama, Kingdom of Bahrain

Report on the consolidated financial statementsWe have audited the accompanying consolidated financial statements of Solidarity Group Holding BSC (c) (“the Company”) and its subsidiaries (together the “Group”), which comprise the consolidated statement of financial position as at 31 December 2009, the consolidated policyholders’ takaful funds statement of financial position as at 31 December 2009, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of policyholders’ revenues and expenses and policyholders’ surplus and deficit – general takaful, the consolidated statement of policyholders’ revenues and expenses policyholders’ surplus and deficit – family takaful, the consolidated statement of changes in shareholders’ equity and the consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Responsibility of the directors for the consolidated financial statementsThe directors of the Company are responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Financial Accounting Standards issued by the Accounting and Auditing Organization for Islamic Financial Institutions, and International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. The directors are also responsible for the Group’s undertaking to operate in accordance with Islamic Shari’a rules and principles.

Auditors’ responsibilityOur responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with both Auditing Standards for Islamic Financial Institutions and International Standards on Auditing. Those standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable

assurance whether the consolidated financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the consolidated financial statements give a true and fair view, of the consolidated financial position of the Group and the policyholders as at 31 December 2009, and of its consolidated financial performance, consolidated policyholders’ revenues and expenses and policyholders’ surplus and deficit – general takaful, consolidated policyholders’ revenues and expenses and policyholders’ surplus and deficit – family takaful, consolidated cash flows, and the changes in its consolidated shareholders’ equity, for the year then ended in accordance with Financial Accounting Standards issued by the Accounting and Auditing Organisation for Islamic Financial Institutions, and Shari’a rules and principles as determined by the Shari’a Supervisory Board of the Group.

In addition, in our opinion, the consolidated financial statements give a true and fair view, of the consolidated financial position of the Group as at 31 December 2009, and of its consolidated financial performance, and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards.

Independent Auditors’ Report to the shareholders 14 February 2010


26

Report on other legal and regulatory requirementsIn addition, in our opinion, the Company has maintained proper accounting records and the consolidated financial statements are in agreement therewith. We have reviewed the accompanying report of the chairman and confirm that the information contained therein is consistent with the consolidated financial statements. We are not aware of any violations of the Bahrain Commercial Companies Law 2001, or the terms of the Company's memorandum and articles of association having occurred during the year which might have had a material effect on the business of the Company

or its financial position. Satisfactory explanations and information have been provided to us by the management in response to all our requests.

KPMGPublic AccountantsManama, Kingdom of Bahrain

Independent Auditors’ Report to the shareholders


27

Consolidated Statement of Financial Positionas at 31 December 2009

Note 20092008

(Restated)2007

(Restated)

ASSETS

Cash and cash equivalents 29,523 20,620 60,377

Statutory deposit 7 1,367 1,066 715

Placements with Islamic financial institutions 8 24,401 25,888 18,837

Receivables:

Takaful funds 12(a) 10,202 11,978 14,208

Related parties 13 2,317 5,140 4,296

Prepayments and others 2,956 9,054 5,179

Investment securities 9 84,387 103,156 121,537

Investments in associates and jointly controlled entity 10 31,455 21,612 22,553

Advance towards investment in associate 11 41,032 41,032 -

Policyholders’ assets 79,091 74,770 71,400

Qard Hassan to Policyholders 5 19,214 19,214 23,538

Property and equipment 1,388 1,297 1,794

Goodwill - - 3,200

Total assets 327,333 334,827 347,634

SHAREHOLDER’S EQUITY, POLICYHOLDERS’ EQUITY AND LIABILITIES

Shareholders’ equity

Share capital 15 220,000 220,000 220,000

Share premium 13,917 13,917 13,917

Statutory reserve 16 1,052 1,020 1,014

Investments fair value reserve 772 1,210 1,816

Foreign currency translation reserve (396) (417) 709

(Accumulated losses)/Retained earnings (14,793) (7,534) 11,334

Equity attributable to equity holders of the parent Company 220,552 228,196 248,790

Non-controlling interest 7,710 8,770 6,329

Total shareholders’ equity 228,262 236,966 255,119

Policyholders’ equity (12,952) (14,074) (19,905)

Liabilities

Policyholders’ liabilities 92,043 88,844 91,305

Payables to related parties 13 1,945 4,483 4,318

Deposits from takaful fund 9,316 9,281 9,357

Other payables 2,885 3,493 5,186

Provision for general takaful fund deficit 12(b) 5,834 5,834 2,254

Total liabilities 112,023 111,935 112,420

Total equity and liabilities 327,333 334,827 347,634

Khalid Abdulla-Janahi Rashid Ismaeel Al Meer Ashraf Bseisu Chairman Vice Chairman Acting Chief Executive Officer

The Board of Directors approved the consolidated financial statements consisting of pages 27 to 78 on 14 February 2010.

US dollars thousands


28

Khalid Abdulla-Janahi Rashid Ismaeel Al Meer Ashraf Bseisu Chairman Vice Chairman Acting Chief Executive Officer

The Board of Directors approved the consolidated financial statements consisting of pages 27 to 78 on 14 February 2010.

Consolidated Income Statementfor the year ended 31 December 2009

Note 2009 2008

REVENUE

Wakala, management and other fees from takaful funds 21 5,209 5,579

Investment income 22 4,398 3,421

Gain on recognition of investment in associate 10 988 -


Share of profit/(loss) from associates & jointly controlled entity 10 462 (61)


EXPENSES

Employee cost (6,749) (8,558)

Other expenses (4,164) (5,472)

Loss on reclassification of available for sale investments as investment in associate (395) -

Foreign exchange loss (228) (1,123)

Total expenses (11,536) (15,153)

Loss before impairment and income tax (36) (4,887)

Impairment 23 (7,206) (14,330)

Loss before tax (7,242) (19,217)

Income tax expense (1) (9)

Loss for the year (7,243) (19,226)



29

Consolidated Statement of Comprehensive Incomefor the year ended 31 December 2009

2009 2008


Other comprehensive income

Foreign currency translation differences for foreign operations 21 (1,126)

Fair value reserve (available-for-sale investments):

Net loss transferred to income statement on re-measurement of available for saleinvestments as investment in associate 395 -

Fair value changes of available-for-sale investments (833) (606)

Other comprehensive income for the year (417) (1,732)

Total comprehensive income for the year (7,660) (20,958)

Loss attributable to:

Equity holders of the parent company (7,227) (18,862)

Non-controlling interest (unit holders of funds) (16) (364)


Total comprehensive income attributable to:

Equity holders of the parent company (7,644) (20,594)

Non-controlling interest (unit holders of funds) (16) (364)

Total comprehensive income for the year (7,660) (20,958)


The consolidated financial statements consist of pages 27 to 78.


30

20092008

(Restated)2007

(Restated)

ASSETS

Cash and cash equivalents 17,859 10,418 4,025

Placements with Islamic financial institutions 15,192 9,400 16,055

Investments – designated at fair value through profit or loss:

Profit earning securities 19,471 28,641 27,745

Equity securities 1,633 1,226 2,314

Receivables:

Policyholders 7,255 8,333 12,941

Insurance and reinsurance companies 7,776 7,500 789

Outstanding claims – reinsurance recoveries (notes 18 and 19) 9,146 8,046 6,689

Unearned commission reserve (notes 18 and 19) 462 295 261

Others 297 911 581

Total assets 79,091 74,770 71,400

LIABILITIES AND POLICYHOLDERS’ EQUITY

Liabilities

Unearned contributions and

mortality reserve (notes 18 and 19) 12,693 10,159 8,309

Unearned commission reserve (notes 18 and 19) - 55 96

Outstanding claims (notes 17, 18 and 19) 14,623 12,834 12,709

Liability towards unit linked fund (note 20) 22,479 20,153 22,769

Payables:

Policyholders 1,115 - -

Insurance and reinsurance companies 9,249 12,367 8,526

Fund manager 10,335 11,576 14,208

Others 2,335 2,486 1,150

Qard Hassan from Shareholders 19,214 19,214 23,538

Total liabilities 92,043 88,844 91,305

Policyholders’ equity (12,952) (14,074) (19,905)

Total liabilities and policyholders’ equity 79,091 74,770 71,400

Consolidated Policyholders’ Takaful Fund Statement ofFinancial Positionas at 31 December 2009




31

POLICYHOLDERS’ REVENUES AND EXPENSES 2009 2008

REVENUE

Gross contributions 20,957 18,300

Retakaful ceded (11,433) (7,783)

Retained contributions 9,524 10,517

Movement in unearned contributions (933) 1,108

Net contributions earned 8,591 11,625

Retakaful commission income 1,510 1,608

Commission expenses (1,541) (1,322)

Net commission income (31) 286

Movement in unearned commission 249 40

Net commission earned / (paid) 218 326

Profit commission and fee income 373

Net investment and other income 561 649


EXPENSES

Gross claims paid 10,849 16,535

Claims recovered from retakaful and others (5,649) (7,676)

Net claims paid 5,200 8,859

Movement in outstanding claims and IBNR – gross 953 (157)

Movement in outstanding claims and IBNR – retakaful (541) (1,177)

Net claims incurred (Note 18 (d) 5,612 7,525

Wakala fee 2,718 3,008

Performance fee - 293

Other expenses 755 443

Total expenses 9,085 11,269

Surplus of revenue over expenses for the year 658 1,331

POLICYHOLDERS’ SURPLUS AND DEFICIT

(Deficit) surplus at 1 January (11,153) (16,807)

Surplus (deficit) for the year 658 1,331

Waiver of wakala fee payable to Mudarib - 4,323

Retained surplus (deficit) at 31 December representing policyholders’ equity (10,495) (11,153)

Consolidated Statement of Policyholders’ Revenues and Expenses and Policyholders’ Surplus & Deficit – General Takaful for the year ended 31 December 2009




32

Consolidated Statement of Policyholders’ Revenues and Expenses – Family TakafulFor the year ended 31 December 2009

POLICYHOLDERS’ REVENUES AND EXPENSES 20092008

(Restated)

REVENUE

Gross contributions 14,324 12,946

Retakaful ceded (7,169) (5,479)

Retained contributions 7,155 7,467

Mortality reserves and unearned contributions (1,601) (2,958)

Net earned contribution 5,554 4,509

Refund of contributions (371) (232)

Net contributions 5,183 4,277

Net investment and other income 213 (1)

Change in fair value of unit linked investments 680 (455)


EXPENSES


Claims recovered from retakaful and others (3,089) (2,958)

Net claims paid 1,683 1,609

Movement in outstanding claims and IBNR – gross 836 282

Movement in outstanding claims and IBNR – retakaful (559) (180)

Net claims incurred (note 18 (h) 1,960 1,711

Net commission expenses 612 588

Wakala, management and other fees 2,267 1,665

Other expenses 103 87

Mudarib’s share of investment income 4 4

Increase in fair value of unit linked liabilities 680 (455)

Total expenses 5,626 3,600

Surplus / (deficit) of revenue over expenses for the year 450 221

POLICYHOLDERS’ SURPLUS AND DEFICIT

Surplus (deficit) at 1 January (2,921) (3,098)

Surplus for the year 450 221

Foreign exchange translation 14 (44)

Retained surplus (deficit) at 31 December representing policyholders’ equity (2,457) (2,921)




33

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34

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Consolidated Statement of Changes In Shareholders’ Equityfor the year ended 31 December 2009

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35

2009 2008

OPERATING ACTIVITIES

Profit on Islamic investments received 6,166 1,890

Net receipts from takaful funds 6,985 7,856

Payments to employees (6,712) (9,089)

Payments for other expenses (5,252) (6,282)

Advisory and asset management income received 443 1,279

Contribution received 41,418 37,491

Retakaful contribution paid (20,650) (19,973)

Refund and withdrawals of investment contributions (4,540) (3,220)

Net commission paid (422) (337)

Claims paid (14,244) (16,514)

Recovery of claims from retakaful and others 8,738 10,634

Wakala and technical fee paid to fund managers (6,985) (7,856)

Cash flows from operating activities 4,945 (4,121)

INVESTING ACTIVITIES

Placements with Islamic financial institutions (6,833) (7,402)

Purchase of investments (8,240) (41,032)

Investment in associate (1,887) -

Proceeds from sale of investments 23,226 19,604

Realised from the forward contract 3,689 -

Purchase of property and equipment (590) (121)

Cash flows from investing activities 9,365 (28,951)

FINANCING ACTIVITIES

Issue of units (payment on redemption) of Solidarity Funds (1,060) 2,805

Payments from / (to) related parties 3,094 (679)

Payments on behalf of related party - (2,418)

Cash flows from financing activities 2,034 (292)

Net increase / (decrease) in cash and cash equivalents 16,344 (33,364)

Cash and cash equivalents as 1 January 31,038 64,402

Cash and cash equivalents at 31 December 47,382 31,038

Represented in the books of:

Shareholders 29,523 20,620

Policyholders 17,859 10,418

47,382 31,038

Consolidated Statement of Cash Flowsfor the year ended 31 December 2009




36

Entity HoldingCountry of

incorporationNature ofactivities

Subsidiaries

1 Solidarity General Takaful BSC (c) 100% Kingdom of Bahrain Takaful

2 Solidarity Family Takaful BSC (c) 100% Kingdom of Bahrain Takaful

3 Takafol Islamic Insurance Company EC (“TIIC”) 100% Kingdom of Bahrain Takaful

4 Islamic Takafol and Retakafol Company (Bahamas) Ltd (“ITRC”) 100% Bahamas Retakaful

5 Solidarity Takafol S.A. Luxembourg 100% Luxembourg Takaful

6 Solidarity Fund Company (“SFC”) and related funds:

• Solidarity International Real Estate Fund

• Solidarity Leasing Fund

• Solidarity Global Growth Fund

• Solidarity European Real Estate Fund

100% Kingdom of Bahrain Investment management

7 Solidarity Aman Fund BSC (c) (“SAF”) 100% Kingdom of Bahrain Investment management

8 Solidarity Asia Takaful Fund 100% Cayman Islands Investment management

9 Solidarity Family Takaful Egypt Co 100% Egypt Takaful

Associates

10 Ensurion WLL 25% Kingdom of Bahrain Insurance management

11 First Insurance Company (refer to note 10) 26.14% Jordan Takaful

Joint venture

12 MAA Takaful Berhad 25% Malaysia Takaful

1 Status and OperationsSolidarity Group Holding BSC (c) (“Parent Company”/ “the Company”), previously known as Solidarity Company BSC (c) is a Bahraini joint stock company (closed) incorporated in the Kingdom of Bahrain on 11 June 2003, under the Bahrain Commercial Companies Law 2001 for carrying out investment activities in thetakaful industry conformity with the precepts of Islamic Shari’a. The

consolidated financial statements include the financial statements of the Company, its subsidiaries and the funds controlled by the Company (collectively “the Group”). The subsidiaries, associates and joint venture of the Group included in these consolidated financial statements are as follows:

NOTES to the 2009 consolidated financial statements



37

2 Basis of Preparation

a) Statement of compliance

The consolidated financial statements of the Company have been prepared in accordance with the Financial Accounting Standards (“FAS”) issued by the Accounting and Auditing Organisation for Islamic Financial Institutions (“AAOIFI”) and International Financial Reporting Standards (“IFRS”). As per FAS 12 General Presentation and Disclosure in the Financial Statements of Islamic Insurance Companies issued by the AAOIFI, the Company is required to present the statement of financial position comprising shareholders and policyholders assets and liabilities, shareholders’ income statement, the statement of policyholders’ revenues and expenses and policyholders’ surplus and deficit, the statement of changes in shareholders’ equity, the consolidated statement of cash flows. In addition to the above, the Company has also presented the policyholders’ takaful funds statement as part of its financial statements.

b) New International Financial Reporting Standards and Interpretations

(i) Standards, amendments and interpretations issued and effective on or after 1 January 2009

The following standards, amendments and interpretations, which became effective in 2009, are relevant to the Group:

IAS 1 - Presentation of Financial Statements

During the year, the Group adopted Revised IAS 1 “Presentation of Financial Statements” on its required application date of 1 January 2009. Revised IAS 1 introduces the term “total comprehensive income”, which represents changes in equity during a period other than those changes resulting from transactions with owners in their capacity as owners. Total comprehensive income may be presented in either 1) a single statement of comprehensive income (effectively combining both the income statement and all non-owner changes in equity in a single statement), or 2) in an income statement and a separate statement of comprehensive income. The Group has opted to present separate statements – an income statement and a separate statement of comprehensive income.

IFRS 7 - Financial Instruments - Disclosures

The amendment to IFRS 7 requires enhanced disclosures about fair value measurements and liquidity risk. In particular, the amendment requires disclosure of fair value measurements by level of a fair value measurement hierarchy. The adoption of the amendment results in additional disclosures but does not have an impact on the financial position or the comprehensive income of the group. These additional disclosures have been presented for the current and previous financial reporting period.

IFRS 8 - Operating segments

IFRS 8 is applicable for periods beginning on or after 1 January 2009. This standard introduces the “management approach” to

segment reporting which requires a change in the presentation and disclosure of segment information based on the internal reports that are regularly reviewed by the Group’s “chief operating decision maker” in order to assess each segment’s performance and to allocate resources to them. The Group primarily operated as a takaful provider and its primary lines of business comprise general takaful, family takaful and asset management operations. Operating segment disclosure is set out in note 27.

Improvements to IFRS

Improvements to IFRS issued in May 2008 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 effective for annual periods beginning on or after 1 January 2009 have been adopted by the Group and no material changes to accounting policies arose as a result of these amendments.

(ii) Standard and interpretations issued but not yet effective for adoption

The following standards and interpretations have been issued by standard setters during 2009 and are mandatory for the Group’s accounting for annual periods beginning on or after 1 July 2009 or later periods and are expected to be relevant to the Group:

IFRS 3 - Business combinations

Revised IFRS 3 Business Combinations (2008) incorporates the following changes that are likely to be relevant to the Group’s operations:

• The definition of a business has been broadened, whichmay result in more acquisitions being treated as businesscombinations.

• Contingent consideration will be measured at fair value, withsubsequent changes in fair value recognised in profit or loss.

• Transaction costs, other than share and debt issue costs, will beexpensed as incurred.

• Any pre-existing interest in an acquiree will be measured at fairvalue, with the related gain or loss recognised in profit orloss.

• Any non-controlling (minority) interest will be measuredat either fair value, or at its proportionate interest in theidentifiable assets and liabilities of an acquiree, on a transaction-by-transaction basis.




38

The Group will apply IFRS 3 (revised) prospectively to all business combinations from 1 January 2010 and therefore there will be no impact on prior periods in the Group’s 2010 consolidated financial statements.

IAS 27 - Consolidated and Separate Financial Statements (amended 2008)

The revised standard requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost; any remaining interest in the entity is re-measured to fair value, and a gain or loss is recognised in profit or loss. The Group will apply IAS 27 (revised) prospectively to transactions with non-controlling interests from 1 January 2010. In the future, this guidance will also tend to produce higher volatility in equity and/or earnings in connection with the acquisition of interests by the Group.

IFRS 9 - Financial instruments

IFRS 9 was issued in November 2009 and replaces those parts of IAS 39 relating to the classification and measurement of financial assets. Key features are as follows:

• Financial assets are required to be classified into two measurement categories: those to be measured subsequently at fair value, and those to be measured subsequently at amortised cost. The decision is to be made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument.

• An instrument is subsequently measured at amortised cost only if it is a debt instrument and both the objective of the entity’s business model is to hold the asset to collect the contractual cash flows, and the asset’s contractual cash flows represent only payments of principal and interest (that is, it has only ‘basic loan features’). All other debt instruments are to be measured at fair value through profit or loss.

• All equity instruments are to be measured subsequently at fair value. Equity instruments that are held for trading will be measured at fair value through profit or loss. For all other equity investments, an irrevocable election can be made at initial recognition, to recognise unrealised and realised fair value gains and losses through other comprehensive income rather than profit or loss. There is to be no recycling of fair value gains and losses to profit or loss. This election may be made on an instrument-by-instrument basis. Dividends are to be presented in profit or loss, as long as they represent a return on investment.

• While adoption of IFRS 9 is mandatory from 1 January 2013, earlier adoption is permitted.

The Group is considering the implications of the standard, the impact on the Group and the timing of its adoption by the Group.

Improvements to IFRS (issued in April 2009)

Improvements to IFRS issued in April 2009 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 effective for annual periods beginning on or after 1 January 2010 with earlier adoption permitted. No material changes to accounting policies are expected as a result of these amendments.

(iii) Financial Accounting Standards issued by AAOIFI

• FAS 23 Consolidation (effective for annual periods beginning on or after 1 January 2010); and

• FAS 24 Investment in Associates (effective for annual periods beginning on or after 1 January 2010).

The requirements of these standards are largely in line with the current policies followed by the Group for accounting of subsidiaries and associates, and the adoption of these standards are not expected to have any material impact on the consolidated financial statements. The Group did not early adopt new or amended standards in 2009.

c) Change in accounting policy for accounting for unit linked contracts

In the years ended on or prior to 31 December 2008, the Group recognised contributions in respect of unit-linked life assurance contracts as revenue when the corresponding units are allocated to policyholders and surrenders and withdrawals of unit-linked life assurance contracts as expenses in the statement of policyholders’ revenue and expenses – family takaful.

Effective 2009, contributions made by individual policyholders in respect of unit-linked contracts are recognised as financial liabilities for unit linked contracts. The change in the accounting policy relating to accounting for unit linked contracts is applied retrospectively. Refer to note 27 for disclosures.

d) Change in accounting estimate – incurred but not reported claims

In the years ended on or prior to 31 December 2008, the Group had:

• been providing for claims incurred but not reported (IBNR) was made at one month’s outstanding claims for the year for all classes of business in its general takaful operations in Bahrain; and

• not been providing for IBNR for the Group’s Medical class of business in its family takaful operations in Bahrain.

NOTESto the 2009 consolidated financial statements



39

Effective 2009, the Group has:

• changed its estimate for IBNR provision to 40 days outstanding claims for its general takaful operations in Bahrain; and

• made an IBNR provision of one and half month’s average monthly claims for the Medical class of business in its family takaful operations.

The above changes in estimates have been applied prospectively in 2009 as changes in estimates. Refer to note 28 for disclosures.

There were no other changes to the accounting policies and risk management framework as set out in the consolidated financial statements for the year ended 31 December 2008.

e) Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis except for financial instruments at fair value through profit or loss, available-for-sale financial assets and derivative financial instruments that are measured at fair value.

f) Functional and presentation currency

The consolidated financial statements are presented in US Dollars, which is the Company’s functional and presentation currency. All financial information presented in US Dollars has been rounded to the nearest thousand unless otherwise stated elsewhere in the financial statements.

g) Use of estimates and judgments

The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results could differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

Information about significant areas of estimation and critical judgements in applying accounting policies on the amounts recognised in the financial statements are described in the following notes:

• Note 3 (d) – The ultimate liability arising from claims made under insurance contracts for General and Family Takaful operations and assessment of adequacy of liabilities for General Takaful and Family Takaful operations

• Note 3 (d) – Mortality and other reserve estimation for Family Takaful operations

• Notes 3 (k), 3 (l) and 3 (m) – Valuation of investments

• Note 3 (t) – Impairment.

3 Significant Accounting Policies

a) Basis of consolidation

The consolidated financial statements include the Parent Company, its subsidiaries and the funds, have been prepared after elimination of inter-company transactions, balances and unrealised surpluses and deficits on transactions between group entities. Subsidiaries are those entities in which the Parent Company, directly or indirectly through subsidiaries, owns more than one half of the voting rights or has the power to govern the financial and operating policies of an enterprise for economic benefit. The financial statements of the funds have been consolidated on the basis that the majority of the unit capital is held by the Company, the asset management activities of the funds are conducted by the Company and the decision making powers, rights to obtain the benefits and ownership risks relating to the funds vest with the Company.

b) Associates and jointly controlled entities (equity accounted investees)

Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50 percent of the voting power of another entity. Jointly controlled entities are those entities over whose activities the Group has joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions.

Associates and jointly controlled entities are accounted for using the equity method and are initially recognised at cost. The Group’s investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include the Group’s share of the income and expenses and equity movements of equity accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest (including any long-term investments) is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee.

c) Foreign currency

(i) Functional and presentation currency

Items included in the financial statements of the Group are measured using the currency of the location in which the entity

to the 2009 consolidated financial statements



40

operates (“the functional currency”). The financial statements are presented in United States Dollars (US$) which is the Group’s presentation currency. The consolidated financial statements are presented in thousands of US Dollars and all values are rounded to the nearest thousand (US$’000) except where otherwise indicated.

(ii) Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of Group’s entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency of the Group at the exchange rate at that date. Transactions in foreign currencies are recorded in US dollars at the exchange rates prevailing at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into US dollars at year-end exchange rates.

Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Translation differences and exchange gains or losses arising on the settlement of monetary items and on retranslation are recognised in the profit or loss. Translation differences for non-monetary items, such as equities classified as available-for-sale investments, are included in a fair value reserve in other comprehensive income and presented in equity.

(iii) Foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to US dollars at exchange rates at the reporting date. The income and expenses of foreign operations are translated to US dollars at exchange rates at the dates of the transactions. Foreign currency differences arising on such translation are recognised in other comprehensive income and presented in policyholders’ and shareholders; equity in the foreign currency translation reserve (FCTR).

d) Insurance

(i) Classification of contracts

The Group issues contracts that transfer insurance risk or financial risk or both. The Group classifies all its contracts individually as either insurance contracts or investment contracts. Contracts which contain both insurance components and investment components, and where the investment component can be measured independently from the insurance component, are “unbundled” i.e. separately classified and accounted for as insurance contracts and investment contracts.

Insurance contracts are those contracts where the insurer accepts significant insurance risk from the policyholder by agreeing to compensate the policyholder if a specified uncertain future

event adversely affects the policyholder. Such contracts may also transfer financial risk. As a general guideline, the Group defines as significant insurance risk as the possibility of having to pay benefits on the occurrence of an insured event. Insurance risk is risk other than financial risk that is transferred from the holder of a contract to the issuer. Financial risk is the risk of a possible future change in one or more of a security price, index of prices or rates or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract. Insurance risk is significant if, and only if, an insured event could cause the Group to pay significant additional benefits. Once a contract is classified as an insurance contract it remains classified as an insurance contract until all rights and obligations are extinguished or expire.

Investments contracts are those contracts with insignificant transfer of insurance risk from the policyholder to the Group and are accounted for as financial instruments under IAS 39 Financial Instruments: Recognition and Measurement and IAS 18 Revenue Recognition.

Wakala fees are charged to the General and Family Takaful fund as approved by the Shari’a Supervisory Board.

(ii) Liability adequacy test

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

(iii) Reinsurance contracts

Reinsurance contracts are contracts entered into by the Group with reinsurers for the purpose of limiting its net loss potential through the diversification of its risks, under which the Group is compensated for losses on insurance contracts issued. Assets, liabilities and income and expense arising from ceded reinsurance contracts are presented separately from the assets, liabilities, income and expense from the related insurance contracts because the reinsurance arrangements do not relieve the Group from its direct obligations to its policyholders.

The benefits to which the Group is entitled under its reinsurance contracts held are recognised as reinsurance assets. These assets consists of balances due from reinsurers on settlement of claims and other receivables such as profit commissions and reinsurers share of outstanding claims that are dependent on the expected claims and benefits arising under the related reinsured insurance contracts. Amounts recoverable from or due to reinsurers are recognised consistently with the amounts associated with the underlying insurance contracts and in accordance with the terms of each reinsurance contract. Reinsurance liabilities are primarily




41

contributions payable for reinsurance contracts and are recognised as an expense when due.

(iv) Policyholder’s takaful fund

The policyholder’s takaful fund represents the undistributed surplus or deficit in respect of contracts in force at the reporting date. At the reporting date, the net value of the policyholder’s takaful fund is adjusted to a minimum of the estimated of reported and unreported outstanding claims (for general takaful) and to a minimum of the actuarially estimated current value of future benefit obligations (for family takaful) under the policies in force at the reporting date. The shortfall, if any, is charged to the policyholders’ statement of revenue and expenses. Surpluses, if any, shall be retained in the policyholders’ takaful fund and to be paid out amongst the policyholders as per the terms of the contracts. The policyholders’ takaful fund is also credited with the net investment income arising out of the investments made by the Company on behalf of the policyholders.

(v) General takaful operations

Gross contributions are recognised in the policyholders’ statement of revenue and expenses from the date of attachment of risk over the policy period. The unexpired portion of such contributions is included under "Unearned contributions" in the policyholders’ statement of financial position. The earned proportion of contributions is recognised as revenue in the policyholders’ statement of revenue and expenses.

Retakaful contributions are amounts ceded to reinsurers in accordance with the reinsurance contracts of the Group. In respect of proportional reinsurance contracts and non-proportional reinsurance contracts, the amounts are recognised in the policyholders’ statement of revenue and expenses as per the terms of these contracts.

Unearned contributions are amounts of contributions 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 retained contributions 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.

Commission income and expense are recognised in the policyholders’ statement of revenue and expenses when insurance contracts are underwritten. The Group defers commission income and expense 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 commission income and expense earned over the tenure of the insurance contracts.

Gross claims are recognised in the policyholders’ statement of revenue and expenses when the claim amount payable to policyholders and third parties is determined as per the terms of the insurance contracts. Claims incurred comprise the settlement and the handling costs of paid and outstanding claims arising from events occurring during the financial period.

Claims recovered include amounts recovered from reinsurance companies in respect of the gross claims paid by the Group, in accordance with the reinsurance contracts held by the Group. It also includes salvage and other claims recoveries.

Outstanding claims represent estimates of the ultimate cost of settling all claims incurred but unpaid at the reporting date whether reported or not, at the reporting date. Provision for outstanding claims reported is based on estimates of the loss, which will eventually be payable on each unpaid claim, established by the management based on currently available information and past experience modified for changes reflected in current conditions, increased exposure, rising claims costs and the severity and frequency of recent claims, as appropriate. General insurance provisions are not discounted for time value of money. The methods used, and the estimates made, are reviewed regularly. The provision for claims incurred but not reported (IBNR) is made as follows:

• based on 40 days outstanding claims for general accident, marine cargo and marine hull businesses; and

• for fire, engineering, liability and motor businesses, IBNR provision are based on the actuarial valuation, for its general takaful operations in Bahrain.

(vi) Family takaful operations

Accounting for insurance contracts

Gross contributions are recognised in the statement of policyholders’ revenue and expenses from the date of attachment of risk over the policy period. The unexpired portion of such contributions is included under "Mortality reserve and Unearned contributions" in the policyholders statement of financial position. The earned proportion of contributions is recognised as revenue in the statement of policyholders’ revenue and expenses.

Retakaful ceded are amounts ceded to reinsurers in accordance with the reinsurance contracts of the Group.

Claims arising on maturity are determined and recognised when the claim becomes due for payment as per the terms of the contracts. Death claims arising on insurance contracts are accounted for on notification of claim.

Outstanding claims for group life and medical business represent




42

estimates made for outstanding claims of the ultimate cost of settling all claims incurred but unpaid at the reporting date whether reported or not, at the reporting date. Provision for outstanding claims reported is based on estimates of the loss, which will eventually be payable on each unpaid claim, established by the management based on currently available information and past experience modified for changes reflected in current conditions, increased exposure, rising claims costs and the severity and frequency of recent claims, as appropriate. General insurance provisions are not discounted for time value of money. The methods used, and the estimates made, are reviewed regularly. The provision for claims incurred but not reported (IBNR) is made on the basis of one and half a month’s average monthly claims for the Medical class of business.

Mortality and other reserves represent the present value of future obligations in respect of contracts in force at the reporting date, computed based on external actuarial valuation.

Surplus (retained and distributable) in the policyholders takaful fund are determined on an annual basis through an actuarial valuation.

Accounting for unit linked contracts

Contributions made by individual policyholders in respect of unit-linked contracts are recognised as financial liabilities for unit linked contracts. The cost of insurance relating to the contributions is determined by computing the appropriate takaful premium and is recognised as income in the policyholders’ statement of revenue and expenses.

The amount of contributions made by individual policyholders net of wakala, management and other fees charged by the Company and cost of insurance charged by the family takaful fund, is considered as the investment component of the contributions as a liability and is invested in designated investments as stipulated by the policyholders. These investments are designated as financial assets held at fair value through profit or loss.

Changes in the fair value of investment component are correspondingly adjusted in the financial liabilities for unit linked contracts in the period in which they arise. The fair value of linked investment contract liabilities is based on the fair value of the financial assets held within the appropriate unit-linked funds. Upon disposal and surrenders, the amounts paid to individual policyholders are accounted for as decrease of unit linked liabilities and assets.

e) Financial instruments

(i) Non-derivative financial instruments

Non-derivative financial instruments comprise financial assets and financial liabilities. Financial assets comprise cash and cash equivalents, statutory deposit, placements with Islamic financial institutions, receivables from takaful funds, receivables from related parties, receivables from policyholders, receivables from insurance

and reinsurance companies, outstanding claim recoveries from reinsurers, investments, policyholders’ assets and Qard Hassan to policyholders.

Financial liabilities comprise payables to related parties, policyholders’ liabilities, deposits from takaful funds, outstanding claims, payables to insurance and reinsurance companies, payable to fund managers and Qard Hassan from shareholders.

Fair values of financial instruments are based on quoted prices for marketable instruments, or estimated fair values, calculated using methods such as net present values of future cash flows. Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured as described below.

(ii) Derivative financial instrument

Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and they are subsequently re-measured at their fair value. The fair value of a derivative is equivalent to the unrealised gain or loss arising from marking to market such derivative using prevailing market rates. Derivatives representing unrealised gains are classified as assets and derivatives representing unrealised losses are classified as liabilities in the statement of financial position. The Group has entered into forward foreign exchange contracts to hedge its foreign currency risks on investments. Any gains or losses arising from changes in the fair value of the forward contracts are recognised in the profit or loss.

(iii) Recognition and derecognition of financial instruments

The Group initially recognises financial assets and financial liabilities on the date at which they are originated. Regular way purchases and sales of financial assets are recognised on the trade date at which the Group commits to purchase or sell the asset. All other financial assets and liabilities (including assets and liabilities designated at fair value through profit or loss) are initially recognised on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or when it transfers the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all the risks and rewards of ownership and it does not retain control of the financial asset.




43

2009

Des

igna

ted

at f

air

valu

e th

roug

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ofit

or lo

ssA

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for-

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Hel

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-m

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dre

ceiv

able

sO

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s at

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d co

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carr

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Ass

ets

Cash

and

cas

h eq

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s-

--

29,5

23-

29,5

23

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utor

y de

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t-

--

1,36

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1,36

7

Plac

emen

ts w

ith Is

lam

ic fi

nanc

ial i

nstit

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ns

--

-24

,401

-24

,401

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ful f

unds

--

-10

,202

-10

,202

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ted

part

ies

--

-2,

317

-2,

317

Inve

stm

ent

secu

ritie

s49

,246

34,6

1652

5-

-84

,387

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ders

’ ass

ets

21,1

04-

-56

,345

-77

,449

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d H

assa

n to

Pol

icyh

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rs

--

-19

,214

-19

,214

Tota

l fina

ncia

l ass

ets

70,3

5034

,616

525

143,

369

-24

8,86

0

Liab

iliti

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ders

’ lia

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--

--

77,5

6577

,565

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--

--

1,94

51,

945

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er p

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2,88

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osits

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m t

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9,31

69,

316

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--

--

91,7

1191

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sific

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fina

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l ins

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The

clas

sific

atio

n of

the

fina

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l ins

trum

ents

of

the

Gro

up is

as

give

n be

low

.NOTES to the 2009 consolidated financial statements

US

dolla

rs t

hous

ands


44

2008

Des

igna

ted

at f

air

valu

e th

roug

h pr

ofit

or lo

ssA

vaila

ble-

for-

sale

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ity

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cost

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l car

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Ass

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Cash

and

cas

h eq

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s-

--

20,6

20-

20,6

20

Stat

utor

y de

posi

t-

--

1,06

6-

1,06

6

Plac

emen

ts w

ith Is

lam

ic fi

nanc

ial i

nstit

utio

ns

--

-25

,888

-25

,888

Taka

ful f

unds

--

-11

,978

-11

,978

Rela

ted

part

ies

--

-5,

140

-5,

140

Inve

stm

ent

secu

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s19

,106

82,9

501,

100

--

103,

156

Polic

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ders

’ ass

ets

29,8

67-

-43

,422

-73

,289

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d H

assa

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Pol

icyh

olde

rs

--

-19

,214

-19

,214

Tota

l fina

ncia

l ass

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48,9

7382

,950

1,10

012

7,32

8-

260,

351

Liab

iliti

es

Polic

yhol

ders

’ lia

bilit

ies

--

--

78,0

1678

,016

Paya

bles

to

rela

ted

part

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--

--

4,48

34,

483

Oth

er p

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les

--

--

3,49

33,

493

Dep

osits

fro

m t

akaf

ul f

und

--

--

9,28

19,

281

Tota

l fina

ncia

l lia

bilit

ies

--

--

95,2

7395

,273

With

the

exc

eptio

n of

cer

tain

inve

stm

ents

car

ried

at c

ost

less

impa

irmen

t al

low

ance

s, t

he f

air

valu

es o

f th

e G

roup

’s as

sets

and

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s cl

osel

y ap

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imat

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US

dolla

rs t

hous

ands


45

f) Cash and cash equivalents

Cash and cash equivalents comprise cash in hand, current accounts with banks and bank deposits with maturities of less than three months, when required.

g) Placements with Islamic financial institutions

Placements with Islamic financial institutions comprise placements made with Islamic banks and other Islamic financial institutions.

h) Receivables from Takaful funds

Receivables from Takaful funds represent the amount of wakala, management and other fees recoverable from the takaful funds of each takaful fund of the Group.

i) Policyholders assets and liabilities

Policyholders’ assets and liabilities represent the assets and liabilities of the General and Family takaful funds.

j) Qard Hassan to policyholders

Qard Hassan is a funding by shareholders to policyholders general and family takaful funds computed based on solvency margin and capital adequacy rules of the Central Bank of Bahrain. Qard Hassan loan is tested annually for impairment.

k) Held to maturity investments

Held to maturity investments are financial assets with fixed or determinable payments and fixed maturity which the Group has the intent and ability to hold to maturity. Held-to-maturity investments are measured at amortised cost, less any impairment losses.

l) Investments at fair value through profit or loss

An instrument is classified at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Financial instruments are designated at fair value through profit or loss if the Group manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Group’s documented risk management or investment strategy. Upon initial recognition, attributable transaction costs are recognised in profit or loss when incurred. Financial instruments at fair value through profit or loss are measured at fair value, and changes therein are recognised in the income statement.

m) Available-for-sale investments

Available-for-sale (“AFS”) investments are initially recognised at the fair value of the consideration given including transaction charges associated with the investment. Purchase and sale of investments are accounted for on the trade date. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses, and foreign exchange gains and losses on available-for-sale monetary items, are recognised in other comprehensive income and presented within equity in fair value reserve.

When an investment is derecognised, the cumulative gain or loss in equity is transferred to profit or loss. Fair values are based on bid price at reporting date for quoted investments. When an investment is derecognised, the cumulative gain or loss in equity is transferred to profit or loss. For AFS investments which do not have a market price or other methods from which to derive reliable fair values, are carried at cost less impairment.

n) Share capital

Equity shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity.

o) Investment income

Investment income comprises income from financial assets. Income from financial assets comprises contractually determined and quantifiable income at the commencement of the transaction and dividend income, net gains/losses on financial assets classified at fair value through income statement, and realised gains/losses on financial assets.

Income from financial assets, which are both contractually determined and quantifiable at the commencement of the transaction, is accrued on the straight-line basis over the period of the transaction. Income which is not contractually determined or quantifiable, is recognised when reasonably certain of realisation or when realised. Gains and losses on disposal of investments are determined on the basis of the difference between net disposal proceeds and the carrying amount of the investment at the date of sale and they are recognized at the time of disposal.

Wakala, management and other fees from family takaful and general takaful funds are recognised when earned in accordance with the takaful agreements approved by the Shari’a Supervisory Board.

p) Property and equipment

Property and equipment are stated at historical cost less accumulated depreciation and impairment losses, if any. Depreciation is provided on the straight-line method at rates which are intended to write-off the original cost of the related assets over their estimated economic useful lives. Depreciation methods, useful lives, and residual values are reassessed annually.

q) Goodwill

Goodwill is initially recognised as the excess of the cost of acquisition over the fair value of the net assets of an acquired subsidiary at the acquisition date. Goodwill arising on investment in associates and jointly controlled entity is included in carrying value of the investments. Goodwill is tested annually for impairment, and when there are indications of impairment.




46

r) Deposits from Takaful funds

Deposits from Takaful funds represent the amounts transferred by the Takaful funds for investing and other activities to the shareholders.

s) Provision for General Takaful fund deficit

This represents the provision made for the unfunded portion of the General Takaful fund deficit of earlier years.

t) Impairment

(i) Financial assets

A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset is measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective profit rate. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its fair value. In the case of available-for-sale equity investments, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the assets are impaired.

Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in the profit or loss. Any cumulative loss in respect of an available-for-sale financial asset are recognised by transferring the cumulative loss that has been recognised in other comprehensive income, and presented in the fair value reserve in equity, to profit or loss. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost and available-for-sale financial assets that are debt securities, the reversal is recognised in profit or loss. For available-for-sale financial assets that are equity securities, the reversal is recognised in other comprehensive income.

(ii) Non-financial assets

The carrying amounts of the Group’s non-financial assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, the recoverable amount is estimated at each reporting date. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax

discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”). The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash-generating units that are expected to benefit from the synergies of the combination.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. An impairment loss in respect of goodwill is not reversed.

In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

u) Provisions

A provision is recognised when the Group has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation.

v) Employees’ end of service benefits

Employees are covered by the pension schemes prevailing in the Kingdoms of Bahrain and Saudi Arabia, and Luxembourg. Expatriate employees are entitled to end of service indemnities as per the labour law in the Kingdoms of Bahrain and Saudi Arabia, based on length of service and final remuneration. The Group accrues for its liability in this respect on an annual basis.

4 Insurance Risk Management

The Group accepts insurance risk through its written insurance contracts. The risk under an insurance contract is the possibility that the insured event occurs and the uncertainty of the amount of the resulting claim. The Group is exposed to uncertainty surrounding the timing, frequency and severity of claims under these contracts. The Group writes general takaful (property, general accident, engineering, liability, marine cargo and hull, motor insurance) and family takaful contracts (health, group life, mortgage and unit-linked contracts).




47

The Group’s Business Management Committee comprising Acting Chief Executive Officer and General Manager of the Group, monitors aggregate risk data and take overall risk management decisions. Two key elements of the Group’s insurance risk management framework are its underwriting strategy and reinsurance strategy, as discussed below.

a) Underwriting strategy

(i) General Takaful operations

The Group’s underwriting strategy is to build balanced portfolios based on a large number of similar risks. This reduces the variability of the portfolios outcome. The underwriting strategy is set out in an annual Group business plan that establishes the classes of business to be written, the territories in which business is to be written and the industry sectors in which the Group is prepared to underwrite. This strategy is cascaded by the business units to individual underwriters through detailed underwriting authorities that set out the limits that any one underwriter can write by line size, class of business, territory and industry in order to ensure appropriate risk selection within the portfolio. The underwriters have the right to refuse renewal or to change the terms and conditions of the contract at renewal. The Group’s Business Management Committee meets monthly to review certain management information including premium income and key ratios by class of business.

(ii) Family Takaful operations

Underwriting is managed at each business unit through a dedicated underwriting department, with formal underwriting limits and appropriate training and development of underwriting staff. The underwriting policy is clearly documented, setting out risks which are unacceptable and the terms applicable for non-standard risks. Medical selection is part of the Group’s underwriting procedures, whereby contributions are charged to reflect the health condition and family medical history of the applicants. Pricing is based on assumptions, such as mortality and persistency, which consider past experience and current trends. Contracts including specific risks and guarantees are tested for profitability according to predefined procedures before approval.

Products are reviewed by the business units on an annual basis to confirm, or otherwise, that pricing assumptions remain appropriate. Analysis is performed on earnings and liability movements to understand the source of any material variation in actual results from what was expected. This confirms the appropriateness of assumptions used in underwriting and pricing.

(iii) Reinsurance strategy

The Group reinsures a portion of the insurance risks it underwrites in order to control its exposure to losses and protect capital resources. Ceded reinsurance contains credit risk, as discussed in the financial risk management note. The Group’s Business Management Committee decides the minimum security criteria for acceptable reinsurance and monitoring the purchase of reinsurance by the business units against those criteria. The Committee monitors developments in the reinsurance programme and its ongoing adequacy.

General Takaful

The business units buy a combination of proportionate and non-proportionate reinsurance treaties to reduce the net exposure to the Group for any single event. In addition, underwriters are allowed to buy facultative reinsurance in certain specified circumstances. All purchases of facultative reinsurance are subject to business unit pre-approval and the total expenditure on facultative reinsurance is monitored on a policy basis at a business unit level and monthly by the Business Management Committee.

Family Takaful

Retention limits are set on a proportionate reinsurance treaty basis.

b) Terms and conditions of significant insurance contracts

An overview of the terms and conditions of significant insurance contracts written by the Group, the territories in which these contracts are written and the key factors upon which the timing and uncertainty of future cash flows of these contracts are detailed in the table below.




48

Type of contract Terms and conditions Key factors affecting future cash flows

Property and engineering Property insurance indemnifies, subject to any limits or excesses, the policyholder against the loss or damage to their own material property and business interruption arising from this damage.

The risk on any policy varies according to many factors such as location, safety measures in place and the age of the property. The event giving rise to a claim for damage to buildings or contents usually occurs suddenly (as for fire and burglary) and the cause is easily determinable. Claims are generally notified promptly and can be settled without delay. The cost of repairing or rebuilding assets, of replacement or indemnity for contents and the time taken to restart or resume operations to original levels for business interruption losses are the key factors influencing the level of claims under these policies.

General accident and liability Under these contracts, compensation is paid for injury suffered by individuals, including employees or members of public.

The timing of claim reporting and settlement is a function of factors such as the nature of the coverage, the policy provisions and the jurisdiction in which the contract is written. Typically, liability damage claims take a long period of time to finalise and settle. Estimating claims provisions for these claims involves uncertainties such as the reporting lag, the number of parties involved in the claim, whether the insured event is over multiple time periods and the potential amounts of the claim. The majority of bodily injury claims are decided based on the laws in force and court judgement, and are settled within two – three years.

Health These contracts reimburse costs for medical treatment and hospital expenses. The policyholder is indemnified for only part of the cost of medical treatment or benefits are fixed.

Claims under these contracts depend on both the incidence of policyholders becoming ill and the duration over which they remain ill. Claims are generally notified promptly and can be settled without delay. Premium revisions are responded reasonably quickly to adverse claims experience.

Group life These contracts cover the life of the employees of an organization. The benefits covered include death, partial and permanent disablement.

Claims under these contracts depend on both the incidence of policyholders becoming ill and the duration over which they remain ill. Claims are generally notified promptly and can be settled without delay. The dominant product style is of an annually renewable insurance contract. This permits premium revisions to respond reasonably quickly to adverse claims experience.

Marine cargo and hull These contracts cover the marine cargo and hull insurance over the period of the voyage of the vessel.

Claims under these contracts are dependent on weather conditions and claims are likely to be high in adverse weather conditions. Claims will be notified on completion of the voyage and are generally easily determinable. Claims are generally notified promptly and can be settled without delay. The cost of repairing or rebuilding the hull, of replacement or indemnity for contents is the key factor influencing the level of claims under these policies.




49

Type of contract Terms and conditions Key factors affecting future cash flows

Motor Motor insurance contracts provide cover in respect of policyholders’ private cars and their liability to third parties in respect of damage to property and injury. The exposure on motor insurance contracts is normally limited to the replacement value of the vehicle and a policy limit in respect of third party damage. Exposure to third party bodily injury is unlimited in accordance with statutory requirements.

In general, claims reporting lags are minor and claim complexity is relatively low. The frequency of claims is affected by adverse weather conditions, and the volume of claims is higher in adverse weather conditions. The number of claims is also correlated with the economic activity, which affects the amount of traffic activity. The majority of bodily injury claims are decided based on the laws in force and court judgement, and are settled within two – three years.

Mortgage These contracts indemnify financing institutions for the value of the loan availed by a policyholder. Exposure occurs on death, critical illness and total permanent disability.

Claims reporting lags are minor and claim complexity is relatively low. The amount of claim is limited to the reducing balance of loan due to the financing institution. The majority of critical illness and total permanent disability claims are decided based on medical judgement, and are settled within six months.

Term life These contracts indemnify the life of the policyholder over a defined period.

Claims reporting lags are minor and claim complexity is relatively low. The exposure of the Group and amount of claim is limited to the retained portion of the policy value.

Directors’ and officers’ liability D&O Liability Contracts indemnify directors for their wrongful and negligent act in their capacity as director of an entity.

By its nature it is a low frequency high severity class influenced by the jurisdiction, level of corporate governance regulations, legal environment and litigious nature of the public at large. It has a long tail and would generally take a long period to settle. Reserving is quite difficult due to time lag, number of people involved and the changes in the corporate laws.

Unit-linked These are issued unit-linked savings contracts that are classified as investment contracts.

All financial risk is borne by the policyholder as investment performance directly affects the value of the unit fund and hence the benefits payable. Other key factors affecting future net cash flows to the shareholders are the level of charges levied on these unit-linked funds.




50

c) Risk exposure and concentration of insurance risk

General Takaful

The following table shows the Group’s exposure to general takaful business (based on the carrying value of insurance provisions at the reporting date) per category of business. The table also shows the geographical concentration of these risks and the extent to which the Group has covered these risks by reinsurance.

31 December 2009Geographical area Non-Marine Marine Motor Total

BahrainGross 9,443 442 9,422 19,307

Net of reinsurance 971 114 8,198 9,283

Saudi ArabiaGross 1,610 23 17 1,650

Net of reinsurance 215 17 9 241

TotalGross 11,053 465 9,439 20,957

Net of reinsurance 1,186 131 8,207 9,524

31 December 2008Geographical area

BahrainGross 7,523 511 5,965 13,999


Saudi ArabiaGross 1,584 905 1,812 4,301

Net of reinsurance 783 525 1,719 3,027

TotalGross 9,107 1,416 7,777 18,300





51

Family Takaful

The following table shows the Group’s exposure to family takaful risk (based on the carrying value of insurance provisions at the reporting date) per category of business. The table also shows the geographical concentration of these risks and the extent to which the Group has covered these risks by reinsurance.


Group lifeand medical Takaful Total

BahrainGross 7,425 3,089 10,514

Net of reinsurance 3,480 2,228 5,708

QatarGross 3,667 - 3,667

Net of reinsurance 1,323 - 1,323

Other countriesGross 44 99 143

Net of reinsurance 36 88 124

TotalGross 11,136 3,188 14,324



BahrainGross 8,001 3,551 11,552


QatarGross 1,252 - 1,252

Net of reinsurance 357 - 357

Other countriesGross - 142 142

Net of reinsurance - 129 129

TotalGross 9,253 3,693 12,946





52

5 Capital Management

The Board’s policy is to maintain a strong capital base so as to maintain investor and counterparty confidence and to sustain future development of the business. The Group'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.

All of the companies in the Group are supervised by regulatory bodies that set out certain minimum capital requirements. It is the Group’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 Group 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 Group’s approach to capital management during the year.

The Central Bank of Bahrain (CBB) rulebook stipulates that solvency margin requirements are determined separately for General Takaful, Family Takaful operations and the shareholders in Bahrain. The Group has met the above requirements of the CBB.

6 Financial Risk Management

a) Overview

The Group has exposure to the following risks from its use of financial instruments:

• credit risk

• liquidity risk

• market risk

This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital. Further quantitative disclosures are included throughout these consolidated financial statements. The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Board has established the Risk Management Committee, which is responsible for developing and monitoring the Group’s risk management policies. The committee reports regularly to the Board of Directors on its activities.

The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities.

The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Group Audit Committee oversees how management monitors compliance with the Group’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Group Audit Committee is assisted in its oversight role by Group Internal Audit and the Audit Committees of SGT and SFT.

b) Credit risk

Credit risk is the risk of financial loss to the Group if counterparty fails to meet its contractual obligations. The Group’s key areas of exposure to credit risk include:

• placements with Islamic financial institutions, investments, derivative financial instruments and cash and cash equivalents;

• receivables, including amounts due from insurance and investment contract policyholders, reinsurers’ share of insurance liabilities, amounts due from reinsurers in respect of payments already made to policyholders; and

• Qard Hassan to Policyholders.

The nature of the Group’s exposures to credit risk and its objectives, policies and processes for managing credit risk have not changed significantly from the prior period.

(i) Management of credit risk

The Group manages its credit risk in respect of its deposits, investments and securities by placing limits on its exposure to a single counterparty. The Group has a policy of investing evaluating the credit quality of investments, reviewing public rating information and from internal investigations before making investments.

The Group’s exposure to individual policyholders and groups of policyholders is monitored by the individual business units as part of its credit control process. Financial analyses are conducted for significant exposures to individual policyholders or homogenous groups of policyholders. The Group also operates a policy to manage its reinsurance counterparty exposures. The Group assesses the creditworthiness of all reinsurers by reviewing public rating information and from internal investigations. The impact of reinsurer default is measured regularly and managed accordingly on a group-wide basis.

(ii) Overall exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:




53

Shareholders’ financial assets 2009 2008

Placements with Islamic financial institutions 24,401 25,888

Receivables (excluding prepayments)

Takaful funds 10,202 11,978

Related parties 2,317 5,140

Investment securities

Held to maturity 525 1,100

Designated at fair value through profit or loss 49,246 19,106

Available for sale 34,616 82,950

Qard Hassan to Policyholders 19,214 19,214

Statutory deposit 1,367 1,066

Cash and cash equivalents 29,523 20,620

171,411 187,062

Policyholders’ financial assets 2009 2008

Receivables

Insurance and reinsurance companies 16,039 15,271

Policyholders 7,255 8,333

Placements with Islamic Financial institutions 15,192 9,400

Investment securities


Cash and cash equivalents 17,859 10,418

77,449 73,289

The carrying amounts of financial assets and cash and cash equivalents do not include any assets that either are past due or impaired. The Group has no financial assets or reinsurance assets that would be past due or impaired whose terms have been renegotiated. The Group does not hold any collateral as security or any credit enhancements (such as guarantees, credit derivatives and netting arrangements that do not qualify for offset).




54

(iii) Concentration of credit risk

The Group monitors concentrations of exposures by industry sector and geographic location of the counterparty as well as by individual

counterparties. The specific concentration of risk from counterparties where receivables for any one counterparty or group of connected counterparties is US$5 million or more at the year end is as follows:

2009 2008

Faisal Private Bank, a related party 4,403 15,898

Islamic Investment Company of Gulf (Bahamas) Ltd 21,496 22,598

Ithmaar Bank, a shareholder 21,727 25,000

Qatar Islamic Bank, a shareholder 10,992 13,944

Shamil Bank, a related party 29,034 29,389

Kuwait Finance House 5,239 -

92,891 106,829

(iv) Assets that are past dueThe Group has insurance and other receivables that are past due but not impaired at the reporting date (as indicated by the overall credit risk exposure analysis). The Group believes that impairment of these receivables is not appropriate on the basis of stage of collection of amounts owed to the Group.

An age analysis of the carrying amounts of these insurance and other receivables is presented below.

Shareholders’ financial assets Less than 365 days More than 365 days Total

31 December 2009


Takaful funds 4,323 5,879 10,202

Related parties 127 2,190 2,317

Policyholders’ assets 22,498 796 23,294

Qard Hassan to Policyholders 19,214 - 19,214

46,162 8,865 55,027

31 December 2008


Takaful funds 7,349 4,629 11,978

Related parties 1,111 4,029 5,140

Policyholders’ assets 23,224 380 23,604

Qard Hassan to Policyholders 19,214 - 19,214

50,898 9,038 59,936




55

Policyholders’ financial assets Less than 365 days More than 365 days Total

31 December 2009

Receivables

Reinsurance assets 16,000 39 16,039

Policyholders 6,498 757 7,255

22,498 796 23,294

31 December 2008

Receivables

Reinsurance assets 15,271 - 15,271

Policyholders 7,953 380 8,333

23,224 380 23,604

c) Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations from its financial and insurance liabilities that are settled by delivering cash or another financial asset. The Group is exposed to daily calls on its available cash resources mainly from claims arising from insurance and investment contracts. Liquidity risk may arise from a number of potential areas, such as a durationmismatch between assets and liabilities and unexpectedly high levels of lapses/surrenders. The nature of the Group’s exposures to liquidity risk and its objectives, policies and processes for managing liquidity risk have not changed significantly from the prior period.

(i) Management of liquidity risk

The Group’s approach to managing liquidity is to ensure, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group’s approach to managing its liquidity risk is as follows:

• Budgets are prepared and revised on a regular basis to predict cash outflows from insurance and investment contracts over the short, medium and long term;

• The Group purchases assets with similar durations to its insurance and investment contracts;

• Assets purchased by the Group are required to satisfy specified marketability requirements; and

• The Group maintains cash and liquid assets to meet daily calls on its insurance and investment contracts.




56

(ii) Exposure to liquidity risk

An analysis of the contractual maturities of the Group’s financial liabilities (including contractual undiscounted interest payments) is presented below.

Shareholder’s financial liabilities

Contractual undiscounted cash flows

Carryingamount

Total cashoutflows

1- 5years

31 December 2009

Policyholders liabilities 77,565 77,565 77,565

Payable to related parties 1,945 1,945 1,945



91,711 91,711 91,711

31 December 2008

Policyholders liabilities 78,016 78,016 78,016

Payable to related parties 4,483 4,483 4,483



95,273 95,273 95,273




57

Policyholder’s financial liabilities

Contractual undiscounted cash flows

Carryingamount

Total cashoutflows

1 – 5years

31 December 2009

Outstanding claims 12,838 12,838 12,838

Payables:

Policyholders 1,115 1,115 1,115


Fund manager 10,335 10,335 10,335

Others 2,335 2,335 2,335

Financial liabilities for unit linked funds 22,479 22,479 22,479


77,565 77,565 77,565

31 December 2008

Outstanding claims 12,220 12,220 12,220

Payables:

Policyholders - - -


Fund manager 11,576 11,576 11,576

Others 2,486 2,486 2,486

Financial liabilities for unit linked funds 20,153 20,153 20,153


78,016 78,016 78,016

d) Market risks

Market risk is the risk that changes in market prices, such as profit rates, foreign exchange rates and equity prices which will affect the value of the Group’s assets, the amount of its liabilities and/or the Group’s income. Market risk arises in the Group due to fluctuations in the value of liabilities and the value of investments held. The Group is exposed to market risk on all of its financial assets, including those held to back linked contracts to the extent that the fees earned by the Group on these contracts are often dependent on the market value of the underlying portfolio.

The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. The nature of the Group’s exposures to market risks and its objectives, policies and processes for managing credit risk have not changed significantly from the prior period.

(i) Management of market risks

All entities in the Group manage market risks locally in accordance with their asset/liability management framework. At Group level, the Investment Committee manages and monitors market risks. This committee was established by the Board of Directors and consists of both executive and non-executive members. The Committee reports regularly to the Board of Directors on its activities.




58

For each of the major components of market risk the Group has policies and procedures in place which detail how each risk should be managed and monitored. The management of each of these major components of major risk and the exposure of the Group at the reporting date to each major risk are addressed below.

(ii) Profit rate risk

Profit rate risk arises primarily from the Group’s investments. Changes in investment values attributable to profit rate changes are mitigated by corresponding and partially offsetting changes in the economic value of insurance provisions, investment contract liabilities. The Group manages its profit rate risk by matching, where possible, the duration and profile of assets and liabilities to minimise the impact of mismatches between the value of assets and liabilities from profit rate movements. The Group monitors its profit rate risk exposure through periodic reviews of the asset and liability position. The nature of the Group’s exposures to profit rate risk and its objectives, policies and processes for managing profit rate risk have not changed significantly from the prior period.

(iii) Currency risk

Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Group’s currency risk is related to changes in exchange rates applicable to the settlements in foreign currencies. The Group’s exposure to currency risk is limited as the majority of its investments, receivables and payables are denominated in US Dollar or denominated in currencies which are pegged to US Dollar.

The Group is exposed to currency risk on its investments that are denominated in a currency other than the respective functional currencies of Group entities. The currencies in which these transactions primarily are denominated are Euro. The Group enters into forward foreign exchange contracts to hedge its foreign currency risks on investments maintained in currencies other than US Dollars, to minimise the risk of foreign exchange fluctuations. In respect of other monetary assets and liabilities denominated in foreign currencies, the Group ensures that its net exposure is kept to an acceptable level by buying forward contracts. The Group’s investment in its subsidiaries and its equity accounted investees is not hedged as those currency positions are considered to be long-term in nature. The table below summarises the carrying value of the Group’s assets and liabilities by major currencies at the reporting date.

31 December 2009 Euro

Total assets 26,202

Total liabilities -

Net assets 26,202

31 December 2008

Total assets 36,841

Total liabilities -

Net assets 36,841

The assets and liabilities above were translated at exchange rates at the reporting date and are stated after taking account of the effect of forward foreign exchange contracts. The nature of the Group’s exposures to currency risk and its objectives, policies and processes for managing currency risk have not changed significantly from the prior period.

(iv) Other market price risk

The primary goal of the Group’s investment strategy is to ensure risk free returns and invest excess surplus fund available with the Group in risk free securities. Market price risk arises from investment held by the Group. The Group’s Investment Committee monitors its investment portfolio based on market expectations. Material investments within the portfolio are managed on an individual basis and all buy and sell decisions are approved by the Company’s Board of Directors.




59

(v) Sensitivity analysis to market risks

The table below shows the results of sensitivity testing on the Group’s income statement and equity by type of business. The sensitivity analysis indicates the effect of changes in market risk factors arising from the impact of the changes in these factors on the Group’s financial assets and liabilities and its insurance assets and liabilities.

31 December 2009 Profit or loss Equity

Profit rate risk

+ 100 basis points shift in yield curves 271 271

- 100 basis points shift in yield curves (271) (271)

Currency risk

10 percent increase in euro exchange rate 2,694 2,694

10 percent decrease in euro exchange rate (2,694) (2,694)

Equity price risk

10 percent increase in equity prices 454 1,016

10 percent decrease in equity prices (454) (1,016)

31 December 2008 Profit or loss Equity

Profit rate risk

+ 100 basis points shift in yield curves 437 437

- 100 basis points shift in yield curves (437) (437)

Currency risk

10 percent increase in euro exchange rate 6,296 6,296

10 percent decrease in euro exchange rate (6,296) (6,296)

Equity price risk

10 percent increase in equity prices 447 447

10 percent decrease in equity prices (447) (447)

(vi) Assumptions, methodology and limitations of sensitivity analysis

The effects of the specified changes in factors are determined using internally developed models. The level of movements in market factors on which the sensitivity analysis is based were determined based on economic forecasts and historical experience of variations in these factors. The sensitivity analyses do not take into consideration that the Group’s assets and liabilities are actively managed. Additionally, the sensitivity analysis is based on the Group’s financial position at the reporting date and may vary at the time that any actual market movement occurs. As investment markets move past pre-determined trigger points, management action would be taken which would alter the Group’s position.




60

e) Fair value hierarchy

The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:

• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities

• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices)

• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

31 December 2009 Level 1 Level 2 Level 3 Total

Available for sale financial assets 5,503 767 - 6,270

Financial assets designated at fair value 1,873 1,597 - 3,470

Derivative financial assets - - 539 539

Policyholders financial assets 10,323 5,679 - 16,002

Total 17,699 8,043 539 26,281

31 December 2008

Available for sale financial assets 12,579 1,030 - 13,609

Financial assets designated at fair value 1,817 2,290 - 4,107

Derivative financial assets - - 2,650 2,650

Policyholders financial assets 10,102 6,754 - 16,856

Total 24,498 10,074 2,650 37,222

7 Statutory Deposit

The statutory deposit is placed with the Shamil Bank, a related party and Central Bank of Bahrain in accordance with the provisions of the Central Bank of Bahrain and Financial Institutions Law 2006 for the purpose of carrying on insurance operations in the Kingdom of Bahrain.

8 Placements With Islamic Financial Institutions

2009 2008

Placements 26,628 28,115

Less: impairment allowance (2,227) (2,227)

24,401 25,888




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9 Investment Securities

2009 2008

Held to Maturity 1,100 1,100


Available-for-sale 52,890 82,950

Less: Impairment allowance (8,233) (1,000)

84,387 103,156

Of the above, investments are classified into the major categories (adjusted for impairment allowance) as follows:

2009 2008

Held to Maturity

Profit earning securities 525 1,100

Designated at fair value through profit or loss

Profit earning securities 30,153 15,000

Quoted equity securities 1,873 1,816

Unquoted equity securities 2,590 2,290

Available-for-sale

Profit earning securities 13,961 58,598

Quoted equity securities 5,503 15,061

Unquoted equity securities 29,782 9,291

84,387 103,156

Notes:

• Of the above investments, the Group’s investment amounting to US$ 3 million (2008: US$ 3 million) is registered in the name of Ithmaar Development Company Limited who holds the shares for the beneficial interest of the Group as per the terms of the trust deed executed between the parties.

• Policyholders’ investments are as disclosed in the policyholders’ statement of financial position.




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10 Investments in Associates and Jointly Controlled Entity

2009 2008

At 1 January 21,612 22,553

Reclassified from available for sale investments 7,480 -

Additional purchases 1,888 -

Effect of movements in foreign exchange rate (2) (880)

Share of profit/ (loss) 462 (61)

Share of fair value reserve 15 -

At 31 December 31,455 21,612

On 12 January 2009, the Group increased its investment in the share capital of First Insurance Company Jordan from 19% to 26.14% through a series of acquisitions and as a result, it is now accounted for as an associate under the equity method. The investment was previously classified as available-for-sale investment as on 31 December 2008. The effects of the acquisition as on the acquisition date is as follows:

Amount

Fair value of the associate as on the acquisition date 6,492

Group’s share in the net fair value of the associate’s identifiable assets and liabilities based on the Group’s 20 % stake in the share capital as on the acquisition date 7,480

Excess of Group’s share in the net fair value of the associate’s identifiable assets and liabilities over the fair value of the associate recognised as gain on acquisition 988

The aggregate financial information of the above entities based on management accounts without adjustment for the ownership of Solidarity is as follows:

31 December 2009 Ensurion WLL First Insurance Company MAA Takaful Berhad

Classification Associate Associate Jointly controlled entity

Ownership percentage 25% 26.14% 25%

Assets 213 40,775 52,953

Liabilities 35 4,551 64,821

Revenue 37 3,738 15,548

Expenses 31 2,358 15,175

Profit / (loss) 6 1,380 373

Market value of the Group’s investment in First Insurance Company, Jordan as at 31 December 2009 amounted to US$ 7,474 (2008: US$ 6,439). Ensurion WLL and MAA Takaful Berhad are not listed in any stock exchange.




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31 December 2008 Ensurion WLL MAA Takaful Berhad

Classification Associate Jointly controlled entity

Ownership percentage 25% 25%

Assets 572 36,292

Liabilities 80 9,552

Revenue 220 8,456

Expenses 108 8,808

Profit / (loss) 112 (352)

11 Advance for Investment in Associate

The Group paid subscription money amounting to US$ 41 million (2008: US$ 41 million) for a 27.5% stake in the share capital of Solidarity Saudi Takaful Company (under formation) in the Kingdom of Saudi Arabia. The investee company is in the process of being incorporated.

12 Receivables From Takaful Funds/Provision for Deficit

2009 2008

(a) Receivables from takaful funds managed by:

SFT 5,247 4,885

SGT 3,458 6,135

ITRC 1,082 911

TIIC 410 -

Solidarity Family Takaful, Egypt 5 -

TSA - 47

10,202 11,978

Amounts receivable from takaful funds represent amounts due in respect of the wakala, management and other fees for administration of the takaful funds.

2009 2008

(b) Provision for deficit in takaful funds

At 1 January 5,834 2,254

Release of provision during the year - (613)

Provisions created during the year - 4,193

At 31 December 5,834 5,834




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13 Related Parties

2009 2008

Transactions with related parties

Income from placements

Shareholder 701 1,293

Entities under common control with the entity (1) 208

700 1,501

Investment income (net)

Shareholder 1,601 (429)

Advisory and Asset management fees

Entities under common control with the entity 9 548

Outstanding balances

Payables to related parties

Shareholder 1,862 4,483

Entities under common control with the entity 83 -

1,945 4,483

Receivables from related parties

Entities under common control with the entity 2,317 5,140

Placements with Islamic financial institutions


Investments


Shareholder 36,093 39,243

61,995 66,504

Deposits held with related parties are disclosed in Notes 7 and 8. Investment in equity accounted investees and advance for an associate is disclosed in Notes 10 and 11. Concentration of credit risk with related parties is disclosed in note 6.

Transactions with key management personnel

Key management personnel of the Company comprise of the Board of Directors and key members of management having authority and responsibility for planning, directing and controlling the activities of the Company. No remuneration is paid to the Board of Directors of the Group. Sitting fees paid to the members of the Board and Committees of the Board amounts to US$ 235,950 (2008: US$ 174,800) and salaries and benefits paid to key members of management amounts to US$ 1,797,801 (2008: US$ 1,512,318). End of service benefits due to key management personnel as at 31 December 2009 amounts to US$ 173,148 (2008: US$ 294,430).




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14 Provision for Employees’ End of Service Indemnity

The movement in the provision for end of service indemnity is as follows:

2009 2008

At 1 January 522 818

Charge for the year 171 473

Paid during the year (196) (769)

At 31 December 497 522

15 Share Capital

2009 2008

Authorised500,000,000 (2008: 500,000,000) shares of US$ 1 each 500,000 500,000

Issued and paid up220,000,000 (2008: 220,000,000) shares of US$ 1 each 220,000 220,000

16 Statutory Reserve

In accordance with the provisions of the Bahrain Companies Commercial Law 2001, 10% of the net profit of the Company and its subsidiaries registered in the Kingdom of Bahrain is transferred to a statutory reserve until such time as the statutory reserve equals the paid-up share capital of the Company. This reserve is not distributed. Transfer to statutory reserve, effected by the subsidiaries in accordance with the applicable law of the country of incorporation, is retained in the subsidiary concerned, and is not available for distribution except in circumstances stipulated by the law in the respective country of incorporation.




66

17 Claims Development

The development of insurance liabilities provides a measure of the Group’s ability to estimate the ultimate value of claims. The top half of each table below illustrates how the Group’s estimate of total claims outstanding for each underwriting year has changed at successive year-ends. The bottom half of the table reconciles the cumulative claims to the amount appearing in the balance sheet.

a) General takaful insurance claims- Gross

Underwriting year2005 and

earlier years 2006 2007 2008 2009 Total

Estimate of ultimate claims costs:

At end of reporting year 11,355 3,833 17,109 14,211 11,747 58,255

One year later 11,355 5,372 18,111 12,739 - 47,577

Two years later 10,687 5,209 18,587 - - 34,483

Three years later 12,313 5,150 - - - 17,463

Four years later 13,365 - - - - 13,365

Current estimate of cumulative claims 13,365 5,150 18,587 12,739 11,747 61,588

Cumulative payments to date (10,248) (4,287) (15,860) (10,515) (7,799) (48,709)

Total reserve included in the policyholders statement of financial position 3,117 863 2,727 2,224 3,948 12,879

b) General takaful insurance claims – net

Underwriting year2005 and

earlier years 2006 2007 2008 2009 Total


At end of reporting year 7,336 1,377 9,683 9,026 7,093 34,515

One year later 7,644 2,808 8,773 7,517 - 26,742

Two years later 6,979 2,684 8,870 - - 18,533

Three years later 6,816 2,544 - - - 9,360

Four years later 6,780 - - - - 6,780

Current estimate of cumulative claims 6,780 2,544 8,870 7,517 7,093 32,804

Cumulative payments to date (6,679) (2,418) (8,110) (6,671) (4,054) (27,932)

Total reserve included in the policyholders statement of financial position 101 126 760 846 3,039 4,872




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c) Family takaful insurance claims – gross

Underwriting year 2005 2006 2007 2008 2009 Total


At end of reporting year 654 2,175 3,321 4,927 5,600 16,677

One year later 654 2,175 3,321 4,793 - 10,943

Two years later 654 2,175 3,321 - - 6,150

Three years later 654 2,175 - - - 2,829

Four years later 654 - - - - 654

Current estimate of cumulative claims 654 2,175 3,321 4,793 5,600 16,543

Cumulative payments to date (654) (2,175) (3,321) (4,793) (3,856) (14,799)

Total reserve included in the policyholders’ statement of financial position - - - - 1,744 1,744

d) Family takaful insurance claims – net

Underwriting year 2005 2006 2007 2008 2009 Total


At end of reporting year 88 597 1,123 1,710 1,974 5,492

One year later 88 597 1,123 1,676 - 3,484

Two years later 88 597 1,123 - - 1,808

Three years later 88 597 - - - 685

Four years later 88 - - - - 88

Current estimate of cumulative claims 88 597 1,123 1,676 1,974 5,458

Cumulative payments to date (88) (597) (1,123) (1,676) (1,369) (4,853)

Total reserve included in the policyholders’ statement of financial position - - - - 605 605




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18 Movements in Insurance Liabilities and Reinsurance Assets

a) Outstanding claims – General takaful

2009 2008

Gross Re-insurance Net Gross Re-insurance Net

Reported claims 11,364 (7,212) 4,152 11,581 (6,176) 5,405

IBNR 562 (254) 308 502 (113) 389

Total at 1 January 11,926 (7,466) 4,460 12,083 (6,289) 5,794

Change in liabilities 953 (541) 412 (157) (1,177) (1,334)

Total at 31 December 12,879 (8,007) 4,872 11,926 (7,466) 4,460

Reported claims 11,657 (7,474) 4,183 11,364 (7,212) 4,152

IBNR 1,222 (533) 689 562 (254) 308

Total at 31 December 12,879 (8,007) 4,872 11,926 (7,466) 4,460

b) Unearned contributions – General takaful

2009 2008


At 1 January 8,473 (4,082) 4,391 13,168 (7,669) 5,499

Net (decrease) increase during the year 481 452 933 (4,695) 3,587 (1,108)

At 31 December 8,954 (3,630) 5,324 8,473 (4,082) 4,391

c) Unearned commission – General takaful

2009 2008

Income Expense Net Income Expense Net

At 1 January 461 (406) 55 721 (710) 11

Net (decrease)increase during the year (98) 237 139 (260) 304 44

At 31 December 363 (169) 194 461 (406) 55




69

d) Movements in insurance liabilities and reinsurance assets - General takaful

2009 2008


Less: Claims recovered (5,649) (7,676)

Net claims paid (A) 5,200 8,859

Outstanding claims at 1 January:

- Gross claims 11,926 12,083

- Claims recovered (7,466) (6,289)

Claims at beginning of the year (B) 4,460 5,794

Outstanding claims at 31 December:

- Gross claims 12,879 11,926

- Claims recovered (8,007) (7,466)

Claims at 31 December (C) 4,872 4,460

Net claims incurred (A-B+C) 5,612 7,525

Outstanding claims at 31 December:

- Current year claims 3,425 3,934

- Prior year claims 8,232 7,430

Total reported claims 11,657 11,364

- IBNR 1,222 562

Claims at 31 December 12,879 11,926

e) Outstanding claims – Family takaful

2009 2008


Reported claims 856 (559) 297 574 (380) 194

IBNR 52 (21) 31 52 (20) 32

Total at 1 January 908 (580) 328 626 (400) 226

Change in liabilities 836 (559) 277 282 (180) 102

Total at 31 December 1,744 (1,139) 605 908 (580) 328

Reported claims 1,181 (789) 392 856 (559) 297

IBNR 563 (350) 213 52 (21) 31

Total at 31 December 1,744 (1,139) 605 908 (580) 328




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f) Unearned contributions and mortality reserve – Family takaful

2009 2008


At 1 January 7,648 (1,880) 5,768 4,735 (1,925) 2,810

Net (decrease) increase during the year 3,794 (2,193) 1,601 2,913 45 2,958

At 31 December 11,442 (4,073) 7,369 7,648 (1,880) 5,768

g) Unearned commission – Family Takaful

2009 2008

Income Expense Net Income Expense Net

At 1 January - 295 295 - 261 261

Net (decrease) increase during the year - (27) (27) - 3434

At 31 December - 268 268 - 295 295

h) Movements in insurance liabilities and reinsurance assets - Family takaful

2009 2008


Less: Claims recovered (3,089) (2,958)

Net claims paid (A) 1,683 1,609

Outstanding claims at 1 January

- Gross claims 908 626

- Claims recovered (580) (400)

Claims at 1 January (B) 328 226

Outstanding claims at the end of the year

- Gross claims 1,744 908

- Claims recovered (1,139) (580)

Claims at 31 December (C) 605 328

Net claims incurred (A-B+C) 1,960 1,711

- Current year claims 392 297

- Prior year claims - -

Reported claims 392 297

- IBNR 213 31

Claims at 31 December 605 328




71

19 Sensitivity Analysis to Insurance Risk

The following tables provide an analysis of the sensitivity of profit or loss before tax and total equity to changes in the assumptions used to measure general insurance contract provisions and reinsurance assets at the reporting date. The analysis has been prepared for a change in variable with other assumptions remaining constant. The effect is shown before and after reinsurance.

General takaful

Policyholders’ revenueand expenses

Policyholders’equity

Gross of reinsurance Net


31 December 2009

Expense rate:

1 percent increase (209) (105) (209) (105)

1 percent decrease 209 105 209 105

Expected loss ratio:



31 December 2008

Expense rate:



Expected loss ratio:



Family takaful

Policyholders’ revenue and expenses

Policyholders’equity



31 December 2009

Expense assumptions:

1 percent increase in expenses (194) (123) (194) (123)

1 percent decrease in expenses 194 123 194 123

Surrenders and withdrawals ratio:



31 December 2008

Expense assumptions:

1 percent increase in expenses (176) (121) (176) (121)

1 percent decrease in expenses 176 121 176 121

Surrenders and withdrawals ratio:






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20 Liability Towards Unit Linked Funds

2009 2008

At 1 January 20,153 22,769

Net movement in investment contributions during the year (below) 733 821

Change in fair value of investments in unit linked funds 680 (455)

Foreign exchange translation 913 (2,982)

At 31 December 22,479 20,153

Details of net movement in investment contributions during the year are explained below.

2009 2008

Investment contributions received during the year 5,144 4,613

Less: Wakala charges and other unallocation charges (472) (641)

Net contributions available for investments 4,672 3,972

Less: Withdrawals/ refunds from the fund during the year (4,169) (3,064)

Movement in insurance technical reserves relating to investment fund 230 (87)

Net movement in investment contributions during the year 733 821

21 Wakala, Management and Other Fees from Takaful Funds

The Group receives management fees and reimbursement of expenses for administration of the takaful funds on behalf of the participants in accordance with the agreements of the respective takaful funds.

2009 2008

General takaful

Wakala fees 2,718 3,008

Technical fees - 293

Family takaful

Wakala fees 1,892 1,046

Performance fees 161 53

Management fees 202 566

Fund manager’s share of investment income 12 4

Modaraba funds:

Management fees 224 571

Fund manager’s share of investment income - 38

5,209 5,579




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22 Net Investment Income

2009 2008

Income from placements 1,294 1,745

Income from investments:

Held to maturity 20 193

At fair value through profit or loss 332 (2,870)

Available-for-sale investments 2,752 4,353

4,398 3,421

23 Impairment

2009 2008

Impairment on investments 7,206 3,227

Goodwill written off - 3,200

Provision for takaful fund deficit - 3,580

Impairment of receivables from takaful funds - 4,323

7,206 14,330

24 Shari’a Supervisory Board

The Group’s business activities are subject to the supervision of a Shari’a Committee consisting of three members appointed by the shareholders. The Shari’a Supervisory Board performs a supervisory role in order to determine whether the operations of the Group are conducted in accordance with Shari’a rules and principles.

25 Earnings Prohibited by Shari’a

There were no earnings realized during the year (2008: Nil) from transactions which are not permitted by Shari’a.

26 Zakah

Zakah of US$ 4,541,864 at the rate of 2.1 cents per share (2008: US$ 4,712,314) is to be directly borne by the shareholders and, accordingly, the consolidated financial statements includes no provision for Zakah. The components used in Zakah computation are share capital (less capital contributed by Government or Government bodies), statutory reserve and retained earnings, reduced by accumulated losses and property and equipment. The basis of computation is approved by the Shari’a Supervisory Board and the amounts payable are notified to shareholders.




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27 Segmental Information

The Group’s activities are classified into three business segments viz. General Takaful, Family Takaful and Asset Management.

a) General takaful

Segment revenue and surplus 2009 2008

Gross contribution 20,957 18,300

Retakaful contributions (11,433) (7,783)

Movement in unearned contributions (933) 1108

Net commission earned 218 326

Investment income and other revenue 934 649

Claims and related expenses (5,612) (7,525)

Other expenses (3,473) (3,744)

Surplus 658 1,331

Segment assets and liabilities 2009 2008

Total assets 38,818 40,296

Total liabilities (49,313) (51,449)

b) Family takaful

Segment revenue and surplus 2009 2008

Gross contribution 19,468 17,559

Less: Investment contributions (5,144) (4,613)

Earned contributions 14,324 12,946

Retakaful contributions (7,169) (5,479)

Movement in unearned contributions (1,601) (2,958)

Investment income and other revenue 213 (1)

Claims and related expenses (5,317) (4,287)

Profit/ (loss) 450 221

Segment assets and liabilities 2009 2008

Total assets 40,273 34,474

Total liabilities (42,730) (37,395)




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c) Asset management

Segment revenue and profit 2009 2008

Wakala fee and management fee 5,209 5,579

Investment income and other revenue 4,398 3,421

Profit from associates and jointly controlled entity 1,450 (61)


Profit/ (loss) 11,500 10,266

Segment assets and liabilities – Asset management 2009 2008

Total assets 248,242 260,057

Total liabilities 19,980 23,091

d) Departmental results – general takaful

POLICYHOLDERS’ REVENUES AND EXPENSES

Non-marine (i) Marine (ii) Motor

2009 Total


2008 Total

REVENUE

Gross contributions 11,053 465 9,439 20,957 9,107 1,416 7,777 18,300

Retakaful ceded (9,867) (334) (1,232) (11,433) (6,802) (671) (310) (7,783)

Retained contributions 1,186 131 8,207 9,524 2,305 745 7,467 10,517

Movement in unearned contributions 150 73 (1,156) (933) (569) 1 1,676 1,108

Net contributions earned 1,336 204 7,051 8,591 1,736 746 9,143 11,625

Retakaful commission income 1,417 79 14 1,510 1,441 167 - 1,608

Commission expenses (661) (24) (856) (1,541) (684) (99) (539) (1,322)

Net commission income 756 55 (842) (31) 757 68 (539) 286

Movement in unearned commission 9 (4) 244 249 71 53 (84) 40

Net commission earned / (paid) 765 51 (598) 218 828 121 (623) 326

Profit commission and fee income 340 - 33 373 - - - -

Net investment and other income 483 78 - 561 649 - - 649

Total revenue 2,924 333 6,486 9,743 3,213 867 8,520 12,600




76

POLICYHOLDERS’ REVENUES AND EXPENSES


2009 Total


2008 Total

EXPENSES

Gross claims paid 2,199 100 8,550 10,849 4,862 119 11,554 16,535

Claims recovered from retakaful and others

(1,792) (36) (3,821) (5,649) (4,564) (65) (3,047) (7,676)

Net claims paid 407 64 4,729 5,200 298 54 8,507 8,859

Movement in outstanding claims and IBNR – gross

(86) 1,334 (295) 953 1,045 (132) (1,070) (157)

Movement in outstanding claims and IBNR – retakaful

349 (1,047) 157 (541) (720) 101 (558) (1,177)

Net claims incurred 670 351 4,591 5,612 623 23 6,879 7,525

Wakala fee 781 60 1,877 2,718 953 247 1,808 3,008

Performance fee - - - - 160 23 110 293

Other expenses 425 63 267 755 49 46 348 443

Total expenses 1,876 474 6,735 9,085 1,172 339 9,145 11,269

Surplus/(deficit) of revenue over expenses for the year

1,048 (141) (249) 658 1,428 528 (625) 1,331

i. Non marine includes Property, general accident, liability and engineering insurance. ii. Marine includes cargo and hull insurance.

e) Departmental results – family takaful

POLICYHOLDERS’ REVENUES AND EXPENSES TakafulGroup life

and medical2009Total Takaful

Group life and medical

2008 Total (Restated)

REVENUE

Gross contributions 3,188 11,136 14,324 3,693 9,253 12,946

Retakaful ceded (872) (6,297) (7,169) (450) (5,029) (5,479)

Retained contributions 2,316 4,839 7,155 3,243 4,224 7,467

Mortality reserves and unearned contributions

(1,334) (267) (1,601) (2,288) (670) (2,958)

Net earned contribution 982 4,572 5,554 955 3,554 4,509

Refund of contributions (371) - (371) (232) - (232)

Net contributions 611 4,572 5,183 723 3,554 4,277

Net investment and other income 70 143 213 (1) - (1)

Change in fair value of unit linked investments

680 - 680 (455) - (455)

Total revenue 1,361 4,715 6,076 267 3,554 3,821




77

POLICYHOLDERS’ REVENUES AND EXPENSES TakafulGroup life

and medical2009Total Takaful

Group life and medical

2008 Total (Restated)

EXPENSES

Gross claims paid 62 4,710 4,772 - 4,567 4,567

Claims recovered from retakaful and others (42) (3,047) (3,089) - (2,958) (2,958)

Net claims paid 20 1,663 1,683 - 1,609 1,609

Movement in outstanding claims andIBNR – gross

- 836 836 - 282 282

Movement in outstanding claims andIBNR – retakaful

- (559) (559) - (180) (180)

Net claims incurred 20 1,940 1,960 - 1,711 1,711

Net commission expenses - 612 612 - 588 588

Wakala, management and other fees 416 1,851 2,267 566 1,099 1,665

Other expenses 76 27 103 82 5 87

Modarib’s share of investment income 4 - 4 4 - 4

Increase in fair value of unit linked liabilities

680 - 680 (455) - (455)

Total expenses 1,196 4,430 5,626 197 3,403 3,600

Surplus/(deficit) of revenue over expenses for the year

165 285 450 70 151 221

28 Change in Accounting Policy – Accounting for Unit Linked Contracts

In all years ended on or prior to 31 December 2008, the Group recognised contributions in respect of unit-linked life assurance contracts as revenue in the statement of policyholders’ revenue and expenses when the corresponding units are allocated to policyholders. Effective 2009, Contributions made by individual policyholders in respect of unit-linked contracts are recognised as financial liabilities for unit linked contracts. The change in the accounting policy relating to accounting for unit linked contracts is applied retrospectively in accordance with IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors.

The effects of change in accounting policy on the consolidated statement of policyholders’ revenues and expenses and policyholders surplus and deficit – Family takaful and statement of policyholders’ takaful fund financial positions is explained below:

Policyholders’ equity 2008 2007

As previously reported 6,082 2,865

Effects of changes in accounting policy (20,156) (22,770)

Policyholders’ equity(restated) (14,074) (19,905)

Policyholders’ liability 2008 2007

As previously reported 69,482 68,439

Effects of changes in accounting policy 20,156 22,770

Effects of reclassification between assets and liabilities (794) 96

Policyholders’ equity (restated) 88,844 91,305

A third statement of financial position has been presented in the consolidated statement of financial position of the group (page 27) and in the consolidated policyholders takaful fund statement of financial position (page 30).




78

29 Change in Accounting Estimate – Incurred but not Reported Claims

The Group has carried out an actuarial evaluation of its insurance liability relating to the General Takaful and Family Takaful businesses of the Group, which resulted in changes in the incurred but not reported (IBNR) estimate of the Group. The effects of changes in accounting estimate for the respective businesses are explained below. In the years ended on or prior to 31 December 2008, the Group had:

• been providing for claims incurred but not reported (IBNR) was made at one month’s outstanding claims for the year for all classes of business in its general takaful operations in Bahrain; and

• not been providing for IBNR for the Group’s Medical class of business in its family takaful operations in Bahrain.

Effective 2009, the Group has:

• changed its estimate for IBNR provision to 40 days outstanding claims for its general takaful operations in Bahrain; and

• made an IBNR provision of one and half month’s average monthly claims for the Medical class of business in its family takaful operations.

The effect of the change in the estimate in the current year has resulted in increase in outstanding claims and increase charge to the policyholders’ revenue and expenses general takaful by US$ 445 thousands.

The effect of the change in the estimate in the current year has resulted in increase in outstanding claims and increase charge to the policyholders’ revenue and expenses Family Takaful by US$ 178 thousands.

The effects of change in accounting estimates for the future periods explained above has not been disclosed as it is impracticable to quantify the effect of the above change in estimates for the future periods.

30 Comparatives

Comparative information for changes in accounting policies are as restated in the notes 28 and 29. Other than the above, comparative figures have been regrouped, where necessary, in order to conform to the current year’s presentation. Such regroupings do not affect the previously reported profit, policyholders’ or shareholders’ equity.




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