al fujairah national insurance company p.s.c....

AL FUJAIRAH NATIONAL INSURANCE COMPANY P.S.C. FUJAIRAH - UNITED ARAB EMIRATES FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR’S REPORT FOR THE YEAR ENDED DECEMBER 31, 2009

Al Fujairah National Insurance Company P.S.C. Fujairah - United Arab Emirates Financial Statements and Independent Auditor’s Report For the year ended December 31, 2009 Table of Contents Page Independent Auditor’s Report 1 & 2 Statement of Financial Position 3 Statement of Income 4 Statement of Comprehensive Income 5 Statement of Changes in Shareholders’ Equity 6 Cash Flow Statement 7 Notes to the Financial Statements 8 – 54

Al Fujairah National Insurance Company P.S.C. 4 Fujairah - United Arab Emirates Statement of Income For the year ended December 31, 2009 (In Arab Emirates Dirhams)

Year ended December 31, Note 2009 2008

Insurance premium revenue 16 259,895,395 245,964,402 Reinsurance premium ceded to reinsurers 16 ( 50,810,424) ( 55,836,329)

Net insurance premium revenue 16 209,084,971 190,128,073 Net commission earned 22,175,625 38,720,153 Net insurance premium revenue and commission earned 231,260,596 228,848,226 Gross claims incurred 9 (211,220,043) (204,443,943) Insurance claims recovered from reinsurers 9 24,194,328 29,270,461

Net claims incurred 9 (187,025,715) (175,173,482) Underwriting profit 44,234,881 53,674,744 General and administrative expenses relating to underwriting activities ( 21,040,095) ( 20,013,573) Net underwriting profit 23,194,786 33,661,171 Loss from investments and others 17 ( 19,787,889) ( 16,691,179) Finance costs ( 2,662) ( 911,858) Unallocated general and administrative expenses ( 5,260,025) ( 5,678,471) Allowance for doubtful debts ( 7,893,523) ( 206,857) (Loss)/ profit for the year 18 ( 9,749,313) 10,172,806 ========= =========

Basic (loss)/ earnings per share 19 (13) 13.56 ========= ========= The accompanying notes form part of these financial statements.

Al Fujairah National Insurance Company P.S.C. 5 Fujairah - United Arab Emirates Statement of Comprehensive Income For the year ended December 31, 2009 (In Arab Emirates Dirhams)

Year ended December 31, 2009 2008 (Loss)/ profit for the year ( 9,749,313) 10,172,806 Other comprehensive income: Loss on available-for-sale investments recognised directly in equity ( 7,925,678) (130,556,740) Reclassification adjustments relating to available-for-sale investments impaired during the year 25,000,000 24,800,000 Total comprehensive income/ (loss) for the year 7,325,009 ( 95,583,934) ========= ========= The accompanying notes form part of these financial statements.

Al Fujairah National Insurance Company P.S.C. 6 Fujairah - United Arab Emirates Statement of Changes in Shareholders‘Equity For the year ended December 31, 2009 (In Arab Emirates Dirhams)

Cumulative changes in the Property Share Statutory General revaluation of revaluation Retained capital reserve reserve investments reserve earnings Total

Balance as at December 31, 2007 75,000,000 15,401,579 6,033,154 51,038,395 11,205,588 44,411,980 203,090,696

Profit for the year 2008 - - - - - 10,172,806 10,172,806 Other comprehensive loss for the year - - - ( 105,756,740) - - ( 105,756,740) Total comprehensive loss for the year - - - (105,756,740) - 10,172,806 ( 95,583,934)

Approved cash dividends for 2007 - - - - - (11,250,000) ( 11,250,000) Approved additional transfer to general reserve - - 5,523,265 ( 5,523,265) - Transfer to statutory reserve - 1,017,281 - - - ( 1,017,281) - Transfer to general reserve - - 1,017,281 - - ( 1,017,281) -

- 1,017,281 6,540,546 - - (18,807,827) ( 11,250,000)

Balance as at December 31, 2008 75,000,000 16,418,860 12,573,700 ( 54,718,345) 11,205,588 35,776,959 96,256,762

Loss for the year 2009 - - - - - ( 9,749,313) ( 9,749,313) Other comprehensive income for the year - - - 17,074,322 - - 17,074,322 Total comprehensive income for the year - - - 17,074,322 - ( 9,749,313) 7,325,009

Balance as at December 31, 2009 75,000,000 16,418,860 12,573,700 ( 37,644,023) 11,205,588 26,027,646 103,581,771 ======== ======== ======== ========= ======== ======== ========= The accompanying notes form part of these financial statements.

Al Fujairah National Insurance Company 7 Fujairah - United Arab Emirates Cash Flow Statement For the year ended December 31, 2009 (In Arab Emirates Dirhams)

Year ended December 31, 2009 2008 Operating activities (Loss)/ profit for the year ( 9,749,313) 10,172,806 Adjustments for:

Decrease/ (increase) in reinsurance contract assets 6,963,955 ( 3,062,410) (Decrease)/ increase in insurance contracts liabilities ( 35,826,966) 60,287,324 Depreciation of property and equipment 1,390,875 1,604,632 Allowance for doubtful debts 7,893,523 206,857 Loss on disposal of property and equipment 21,781 26,576 Provision for employees’ end of service indemnity 1,134,365 1,252,517 Investment income ( 4,446,054) ( 16,028,932) Finance costs 2,662 911,858 Impairment loss on available for sale investments 25,000,000 24,800,000 Unrealised (gain)/ loss on investments held for trading ( 787,838) 7,893,535

Operating cash flows before changes in operating assets and liabilities ( 8,403,010) 88,064,763 Increase in insurance and other receivables ( 8,766,145) ( 6,791,742) Increase in insurance and other payables 7,260,496 14,166,020

Cash (used in)/ generated from operations ( 9,908,659) 95,439,041

Employees’ end of service indemnity paid ( 89,599) ( 120,727) Interest paid ( 2,662) ( 911,858)

Net cash (used in)/ from operating activities ( 10,000,920) 94,406,456

Investing activities Increase in fixed deposits under lien ( 1,540,251) ( 20,345) Purchase of property and equipment ( 2,325,986) ( 1,399,541) Additions of properties under construction ( 25,659,409) ( 7,896,818) Purchase of investments in securities ( 115,062,940) ( 838,528,200) Proceeds from disposal of property and equipment 107,050 128,574 Net proceeds from sale of investments in securities 132,996,466 740,419,690 Interest received 971,866 454,811 Sundry income 36,457 37,161 Dividends received 2,621,963 4,779,517 Income from investment property 478,388 308,303

Net cash used in investing activities ( 7,376,396) ( 101,716,848)

Financing activities Dividends paid - ( 11,250,000) Bank loan obtained 9,835,355 -

Cash from/ (used in) financing activities 9,835,355 ( 11,250,000)

Net decrease in cash and cash equivalents ( 7,541,961) ( 18,560,392) Cash and cash equivalents, at the beginning of the year 23,910,804 42,471,196

Cash and cash equivalents, at the end of the year (Note 20) 16,368,843 23,910,804 ========== ========= The accompanying notes form part of these financial statements.

Al Fujairah National Insurance Company P.S.C. 8 Fujairah - United Arab Emirates Notes to the Financial Statements For the year ended December 31, 2009 1. General information

Al Fujairah National Insurance Company P.S.C, Fujairah (the “Company”) is incorporated as a public shareholding Company by Emiri Decree No.3 issued by His Highness, The Ruler of Fujairah in October 1976. The Company is subject to the regulations of U.A.E. Federal Law No. 6 of 2007, concerning formation of the Insurance Authority of U.A.E., and is registered in the Insurance Companies Register of the Insurance Authority of U.A.E. under registration number (11). The address of the Company’s registered office is P.O. Box 277, Fujairah, United Arab Emirates. The principal activity of the Company is the writing of all classes of general insurance other than life assurance. The company operates through its head office in Fujairah and branch offices in Dubai, Abu Dhabi, Sharjah and Dibba.

2. Adoption of new and revised International Financial Reporting Standards

(IFRSs)

2.1 Standards affecting presentation and disclosure The following new and revised Standards have been adopted in the current year in these financial statements and have affected the presentation and disclosures in these financial statements. Details of other Standards and Interpretations adopted but that have had no effect on these financial statements are set out in section 2.2.

• IAS 1 (as revised in 2007) Presentation of Financial Statements

IAS 1 (2007) has introduced terminology changes (including revised titles for the financial statements) and changes in the format and content of the financial statements.

• Amendments to IFRS 7 Financial Instruments: Disclosures, Improving disclosures about Financial Instruments

The amendments to IFRS 7 expand the disclosures required in respect of fair value measurements and liquidity risk.

• IFRS 8 Operating Segments

IFRS 8 is a disclosure Standard that requires re-designation of the reportable segments based on the segments used by the Chief Operating Decision Maker to allocate resources and assess performance.

Al Fujairah National Insurance Company P.S.C. 9 Fujairah - United Arab Emirates Notes to the Financial Statements (continued) For the year ended December 31, 2009


(IFRSs) (continued) 2.2 Standards and Interpretations adopted with no effect on the financial

statements

The following new and revised Standards and Interpretations have also been adopted in these financial statements. Their adoption has not had any significant impact on the amounts reported in these financial statements but may affect the accounting for future transactions or arrangements.

• Amendments to IFRS 2 Share-Based Payment - Vesting Conditions and Cancellations

The amendments clarify the definition of vesting conditions for the purposes of IFRS 2, introduce the concept of “non-vesting” conditions, and clarify the accounting treatment for cancellations.

• IAS 23 (as revised in 2007) Borrowing Costs

The principal change to the Standard was to eliminate the option to expense all borrowing costs when incurred.

• Amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements – Puttable Financial Instruments and Obligations Arising on Liquidation

The revisions to IAS 32 amend the criteria for debt/ equity classification by permitting certain puttable financial instruments and instruments (or components of instruments) that impose on an entity an obligation to deliver to another party a pro-rata share of the net assets of the entity only on liquidation, to be classified as equity, subject to specified criteria being met.

• IFRIC 13 Customer Loyalty Programmes

The Interpretation provides guidance on how entities should account for customer loyalty programmes by allocating revenue on sale to possible future award attached to the sale.

• IFRIC 15 Agreement for the construction of Real Estate

The Interpretation addresses how entities should determine whether an agreement for the construction of real estate is within the scope of IAS 11 Construction Contracts or IAS 18 Revenue and when revenue from the construction of real estate should be recognised.

• IFRIC 16 Hedges of a Net Investment in a Foreign Operation

The Interpretation provides guidance on the detailed requirements for net investment hedging for certain hedge accounting designations.



(IFRSs) (continued) 2.2 Standards and Interpretations adopted with no effect on the financial

statements (continued)

• Improvements to IFRSs (2008) Amendments to IFRS 5, IAS 1, IAS 16, IAS 19,

IAS 20, IAS 23, IAS 27, IAS 28, IAS 29, IAS 31, IAS 36, IAS 38, IAS 39, IAS 40 and IAS 41 resulting from May and October 2008 Annual Improvements to IFRSs effective for annual periods beginning on or after January 1, 2009.

2.3 Standards and Interpretations in issue not yet effective and not early adopted

At the date of authorisation of these financial statements, the following new and revised Standards and Interpretations were in issue but not effective and not early adopted: New Standards and amendments to Standards: Effective for

annual periods beginning on or

after

• IFRS 1 (revised) First Time Adoption of IFRS and IAS 27 (revised) Consolidated and Separate Financial Statements – Amendment relating to Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate

July 1, 2009

• IFRS 1 (revised) First Time Adoption of IFRS – Amendment on additional exemptions for First-time Adopters

January 1, 2010

• IFRS 2 (revised) Share-Based Payment – Amendment relating to Group cash-settled Share-based payments

January 1, 2010

• IFRS 3 (revised) Business Combinations – Comprehensive revision on applying the acquisition method and consequential amendments to IAS 27 (revised) Consolidated and Separate Financial Statements, IAS 28 (revised) Investments in Associates and IAS 31 (revised) Interests in Joint Ventures

July 1, 2009



(IFRSs) (continued) 2.3 Standards and Interpretations in issue not yet effective and not early adopted

(continued)

New Standards and amendments to Standards:

Effective for annual

periods beginning on or after

• IFRS 9 Financial Instruments: Classification and Measurement (intended as complete replacement for IAS 39 and IFRS 7)

January 1, 2013

• IAS 24 Related Party Disclosures – Amendment on disclosure requirements for entities that are controlled, jointly controlled or significantly influenced by a government

January 1, 2011

• IAS 32 (revised) Financial Instruments: Presentation – Amendments relating to classification of Rights Issue

February 1, 2010

• IAS 39 (revised) Financial Instruments: Recognition and Measurement – Amendments relating to Eligible Hedged Items(such as hedging Inflation risk and Hedging with options)

July 1, 2009

• Improvements to IFRSs (2009): Amendments to IFRS 2, IFRS 5, IFRS 8, IAS 1, IAS 7, IAS 17, IAS 18, IAS 36, IAS 38 and IAS 39 resulting from April 2009 Annual Improvements to IFRSs.

Majority effective for annual periods beginning on or after January 1, 2010

New Interpretations and amendments to Interpretations:

• IFRIC 17: Distributions of Non-cash Assets to Owners July 1, 2009

• IFRIC 18: Transfers of Assets from Customers July 1, 2009

• IFRIC 19: Extinguishing Financial Liabilities with Equity Instruments

July 1, 2010

• Amendment to IFRIC 14: IAS 19: The limit on a defined Benefit Asset, Minimum Funding Requirement and their interaction

January 1, 2011



(IFRSs) (continued) 2.3 Standards and Interpretations in issue not yet effective and not early adopted

(continued)

New Interpretations and amendments to Interpretations: (continued)

• Amendment to IFRIC 9 (revised): Reassessment of Embedded Derivatives relating to assessment of embedded derivatives in case of reclassification of a financial asset out of the ‘FVTPL’ category

July 1, 2009

• Amendment to IFRIC 16: Hedges of a Net Investment in a Foreign Operation

July 1, 2009

Management anticipates that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Company except for IFRS 9: Financial Instruments. Management is currently assessing IFRS 9 which may have an impact on the financial statements of the Company.

3. Significant accounting policies

Statement of compliance The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and applicable requirements of U.A.E. Federal Law No. 6 of 2007, concerning formation of Insurance Authority of U.A.E. Basis of preparation The financial statements have been prepared on the historical cost basis, except for the revaluation of financial instruments and investment property. The principal accounting policies adopted are set out below.


3. Significant accounting policies (continued)

Insurance contracts Definition The Company issues contracts that transfer insurance risk. Insurance contracts are those contracts that transfer significant insurance risk. Recognition and measurement Insurance contracts are classified into two main categories, depending on the duration of risk and whether or not the terms and conditions are fixed. Short-term insurance contracts These contracts are casualty and property insurance contracts. Casualty insurance contracts protect the Company’s customers against the risk of causing harm to third parties as a result of their legitimate activities. Damages covered include both contractual and non contractual events. Property insurance contracts mainly compensate the Company’s customers for damage suffered to their properties or for the value of property lost. Customers who undertake commercial activities on their premises could also receive compensation for the loss of earnings caused by the inability to use the insured properties in their business activities (business interruption cover). Short-duration life insurance contracts protect the Company’s customers from the consequences of events that would affect on the ability of the customer or customer’s dependents to maintain their current level of income. Guaranteed benefits paid on occurrence of the specified insurance event are either fixed or linked to the extent of the economic loss suffered by the policy holder. There are no maturity or surrender benefits. For all these insurance contracts, premiums are recognised as revenue (earned premiums) proportionally over the period of coverage. The portion of premium received on in-force contracts that relates to unexpired risks at the reporting date is reported as the unearned premium liability. Claims and loss adjustment expenses are charged to profit or loss as incurred based on the estimated liability for compensation owed to contract holders or third parties damaged by the contract holders. They include direct and indirect claims settlement costs and arise from events that have occurred up to the reporting date even if they have not yet been reported to the Company. The Company does not discount its liabilities for unpaid claims other than for disability claims. Liabilities for unpaid claims are estimated using the input of assessments for individual cases reported to the Company and statistical analysis for the claims incurred but not reported, and to estimate the expected ultimate cost of more complex claims that may be affected by external factors (such as court decisions).


3. Significant accounting policies (continued)

Insurance contracts (continued) Recognition and measurement - continued Reinsurance contracts held Contracts entered into by the Company with reinsurers under which the Company is compensated for losses on one or more contracts issued by the Company and that meet the classification requirements for insurance contracts are classified as reinsurance contracts held. Contracts that do not meet these classification requirements are classified as financial assets. Insurance contracts entered into by the Company under which the contract holder is another insurer are included with insurance contracts. The benefits to which the Company is entitled under its reinsurance contracts held are recognised as reinsurance contract assets. These assets consist of short-term balances due from reinsurers, as well as longer term receivables that are dependent on the expected claims and benefits arising under the related reinsured insurance contracts. Amounts recoverable from or due to reinsurers are measured consistently with the amounts associated with the reinsured insurance contracts and in accordance with the terms of each reinsurance contract. Reinsurance liabilities are primarily premiums payable for reinsurance contracts and are recognised as an expense when due. The Company assesses its reinsurance contract assets for impairment on a regular basis. If there is objective evidence that the reinsurance contract asset is impaired, the Company reduces the carrying amount of the reinsurance contract assets to its recoverable amount and recognises that impairment loss in the profit or loss. The Company gathers the objective evidence that a reinsurance asset is impaired using the same process adopted for financial assets held at amortised cost. The impairment loss is also calculated following the same method used for these financial assets. Insurance contract liabilities Insurance contract liabilities towards outstanding claims are made for all claims intimated to the Company and still unpaid at the end of the reporting period, in addition for claims incurred but not reported. The unearned premium considered in the insurance contract liabilities comprise the estimated proportion of the gross premiums written which relates to the periods of insurance subsequent to the reporting date and is estimated using the 1/8th method for all lines of business. The unearned premium calculated by the 1/8th method accounts for the estimated acquisition costs incurred by the Company to acquire policies and defers these over the life of the policy. The reinsurers’ portion towards the above outstanding claims, claims incurred but not reported and unearned premium is classified as reinsurance contract assets in the financial statements.

Al Fujairah National Insurance Company P.S.C. 15 Fujairah - United Arab Emirates Notes to the Financial Statements (continued) For the year ended December 31, 2009 3. Significant accounting policies (continued)

Insurance contracts (continued) Deferred policy acquisition costs Commissions and other acquisition costs that vary with and are related to securing new contracts and renewing existing contracts are amortised over the terms of the policies as premium is earned. Salvage and subrogation reimbursements Estimates of salvage and subrogation reimbursements are considered as an allowance in the measurement of the insurance liability for claims. Liability adequacy test At each reporting date, liability adequacy tests are performed to ensure the adequacy of the contract liabilities net of related deferred policy acquisition costs. Any deficiency is immediately charged to profit or loss initially by writing off the deferred policy acquisition costs and by subsequently establishing a provision for losses arising from liability adequacy tests. Receivables and payables related to insurance contracts Receivables and payables are recognised when due. These include amounts due to and from agents, brokers and insurance contract holders. If there is objective evidence that the insurance receivable is impaired, the Company reduces the carrying amount of the insurance receivable accordingly and recognises that impairment loss in the profit or loss. The Company gathers objective evidence that an insurance receivable is impaired using the same process adopted for loans and receivables. The impairment loss is also calculated under the same method used for these financial assets. Revenue recognition Insurance contract income Revenue from insurance contracts is measured under revenue recognition criteria stated under insurance contracts in these financial statements.


Revenue recognition (continued) Interest income Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the asset’s net carrying amount. Dividend income Dividend income from investments is recognised when the shareholder’s right to receive payment has been established. Rental income Rental income from investment property which are leased under operating leases are recognised on a straight line basis over the term of the relevant lease. General and administrative expenses 80% of general and administrative expenses for the year are allocated to insurance departments in proportion to each department’s share of written premiums. Foreign currencies The financial statements of the Company are presented in the currency of the primary economic environment in which the Company operates (its functional currency). For the purpose of the financial statements, the results and financial position of the Company are expressed in Arab Emirates Dirhams (“AED”), which is the functional currency of the Company and the presentation currency for the financial statements. In preparing the financial statements of the Company, transactions in currencies other than the Company’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions. At each reporting date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the reporting date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.


Foreign currencies (continued)

Exchange differences are recognised in profit or loss in the year in which they arise except for:

� Exchange differences which relate to assets under construction for future productive use, which are included in the cost of those assets where they are regarded as an adjustment to interest costs on foreign currency borrowings;

� Exchange differences on transactions entered into in order to hedge certain foreign currency risks; and

� Exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur, which form part of the net investment in a foreign operation, and which are recognised in the foreign currency translation reserve and recognised in the profit or loss on disposal of the net investment.

Borrowing costs

Borrowing costs directly attributable to the acquisition and construction of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use. Where applicable, investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in profit or loss in the year in which they are incurred.

Provision for employees’ end of service indemnity

Provision for employees’ end of service indemnity is made in accordance with the U.A.E. labour laws, and is based on basic remuneration and cumulative years of service at the end of the reporting period.

Defined contribution plan

U.A.E. national employees of the Company are members of the Government managed retirement pension and social security benefit scheme established pursuant to U.A.E. Federal Law No. 7 of 1999. The Company is required to contribute 12.5% of "contribution calculation salary" to the retirement benefit scheme to fund the benefits. These employees are also required to contribute 5% of the "contribution calculation salary" to the scheme. The only obligation of the Company with respect to the retirement pension and social security scheme is to make the specified contributions. The contributions are charged to the profit or loss.


Statutory reserve

In accordance with U.A.E. Federal Commercial Companies Law Number 8 of 1984, as amended, the Company has established a statutory reserve by appropriation of 10% of profit for each year. Appropriations to statutory reserve may be discontinued once its balance reaches 50% of the share capital. This reserve is not available for distribution except as stipulated by the Law.

General reserve

Appropriations to general reserve are made at 10% of the yearly profit. This reserve is distributable based on a recommendation by the board of directors approved by a Shareholders’ resolution.

Property and equipment

Property and equipment are carried at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is charged so as to write off the cost of assets over their estimated useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis.

The gain or loss arising on the disposal or retirement of an item of property and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the profit or loss.

Properties under construction

Properties under construction are carried at cost less any identified impairment loss.

Investment property

Investment property, which is property held to earn rentals and/ or for capital appreciation is stated at its fair value at the reporting date. Gains or losses arising from changes in the fair value of investment property are included in the profit or loss.

Impairment of tangible assets

At each reporting date, the Company reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.


Impairment of tangible assets (continued) Recoverable amount is the higher of fair value less costs to sell and value in use. 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 which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in the profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. Provisions Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. Financial assets The Company has the following financial assets: available-for-sale investments, investments held for trading, insurance and other receivables, and bank balances and cash classified as ‘loans and receivables’. The classification depends on the nature and purpose of the financial asset and is determined at the time of initial recognition. The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period.


Financial assets (continued) Bank balance and cash Bank balance and cash comprise of cash on hand and demand deposit, and other short term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value. Insurance and other receivables Insurance and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Loans and receivables are initially measured at fair value, plus transaction costs and subsequently measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. Investments Investments of the Company are recognised and derecognised on a trade date basis where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, net of transaction costs, except for those financial assets classified as at fair value through the profit or loss, which are initially measured at fair value. Investments of the Company are classified as either as ‘at fair value through profit or loss’ (FVTPL) or as available-for-sale (AFS). Financial assets at FVTPL Financial assets are classified as at FVTPL where the financial assets is either held for trading or designated as at FVTPL. A financial asset is classified as held for trading if: • it has been acquired principally for the purpose of selling in the near future; or • it is a part of an identified portfolio of financial instruments that the Company

manages together and has a recent actual pattern of short- term profit taking. Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognised in the profit or loss.


Financial assets (continued)

AFS financial assets

AFS financial assets comprise of listed shares held by the Company which are traded in an active market and are stated at fair value. The fair values of quoted investments in active markets are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Company establishes fair value by using valuation techniques. Gains and losses arising from the changes in the fair value are recognised in other comprehensive income and accumulated in the cumulative change in fair value of investments with the exception of impairment losses. Where the investment is disposed off or is determined to be impaired, the cumulative gain or loss previously recognised in the Shareholders’ equity is included in the profit or loss. The fair value of AFS monetary assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the end of each reporting period. The change in fair value attributable to translation differences that result from a change in amortised cost of the asset is recognised in the profit or loss, and other changes are recognised in other comprehensive income. Impairment of financial assets Financial assets are assessed for indicators of impairment at each reporting date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of insurance receivables where the carrying amount is reduced through the use of an allowance account. When an insurance receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in the profit or loss. For certain categories of financial asset, such as insurance and other receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Company’s past experience of collecting payments, as well as observable changes in national or local economic conditions that correlate with default on receivables.


Financial assets (continued) Impairment of financial assets (continued) If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the financial asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. Fair value of financial instruments The fair value of financial assets and financial liabilities are determined as follows: • The fair value of financial assets with standard terms and conditions and traded on

active liquid markets are determined with reference to quoted market bid prices at the close of the business on the reporting date;

• The fair value of other financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions.

Derecognition of financial assets The Company derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Company recognises its retained interest in the asset and an associated liability for amounts it may have to pay. Financial liabilities and equity instruments issued by the Company Classification as debt or equity Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.


Financial liabilities Insurance and other payables, bank borrowings and provision for employees’ end of service indemnity are classified as ‘other financial liabilities’ and are measured at amortised cost. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period. Bank borrowings Interest bearing bank borrowings are recorded at the proceeds received, net of direct issue costs. Finance charges are accounted for on an accrual basis. Insurance and other payables Insurance and other payables are initially measured at fair value, net of transaction costs and are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis, except for short term payables where the recognition of the interest would be immaterial. Derecognition of financial liabilities The Company derecognises financial liabilities when, and only when, the Company’s obligations are discharged, cancelled or they expire.

4. Critical accounting judgments and key sources of estimation uncertainty In the application of the Company’s accounting policies, which are described in Note 3, Management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Al Fujairah National Insurance Company P.S.C. 24 Fujairah - United Arab Emirates Notes to the Financial Statements (continued) For the year ended December 31, 2009 4. Critical accounting judgments and key sources of estimation uncertainty

(continued) Critical judgements in applying accounting policies Classification of investments Management decides on acquisition of an investment whether it should be classified as FVTPL - held for trading or available-for-sale. The Company classifies investments as FVTPL - held for trading if they are acquired primarily for the purpose of making a short term profit by the dealers. Other investments are classified as available-for-sale. Valuation of unquoted equity investments Valuation of unquoted equity investments is normally based on recent market transactions on an arm’s length basis, fair value of another instrument that is substantially the same, expected cash flows discounted at current rates for similar instruments or other valuation models. Impairment of financial assets The Company determines whether available for sale equity financial assets are impaired when there has been a significant or prolonged decline in their fair value below cost. This determination of what is significant or prolonged requires judgment. In making this judgment and to record whether an impairment occurred, the Company evaluates among other factors, the normal volatility in share price, the financial health of the investee, industry and sector performance, changes in technology and operational and financial cash flows. The management has considered an amount of AED 25,000,000 (2008: 24,800,000) as impairment loss on available-for-sale investments for the year, based on the analysis of impairment test performed on available-for-sale investments based on conditions prevailing in U.A.E.

Al Fujairah National Insurance Company P.S.C. 25 Fujairah - United Arab Emirates Notes to the Financial Statements (continued) For the year ended December 31, 2009 4. Critical accounting judgments and key sources of estimation uncertainty

(continued) Key sources of estimation uncertainty The ultimate liability arising from claims made under insurance contracts The estimation of ultimate liability arising from the claims made under insurance contracts is the Company’s most critical accounting estimate. There are sources of uncertainty that need to be considered in the estimate of the liability that the Company will eventually pay for such claims. Estimates have to be made both for the expected ultimate cost of claims reported at the reporting date and for the expected ultimate cost of claims incurred but not reported (“IBNR”) at the reporting date. Liabilities for unpaid reported claims are estimated using the input of assessments for individual cases reported to the Company and management estimates based on past claims settlement trends for the claims incurred but not reported. At each reporting date, prior year claims estimates are reassessed for adequacy and changes are made to the provision. Note 23, insurance risk, presents the development of the estimate of ultimate claim cost for claims notified in a given year. This gives an indication of the accuracy of the Company’s estimation technique for claims payments. Impairment of insurance receivables An estimate of the collectible amount of insurance receivables is made when collection of the full amount is no longer probable. This determination of whether the insurance receivables are impaired, entails the Company evaluating, the credit and liquidity position of the policy holders and the insurance companies, historical recovery rates including detailed investigations carried out during 2009 and feedback received from the legal department. The difference between the estimated collectible amount and the book amount is recognised as an expense in the profit or loss. Any difference between the amounts actually collected in the future periods and the amounts expected will be recognised in the profit or loss at the time of collection. Liability adequacy test At each reporting date, liability adequacy tests are performed to ensure the adequacy of insurance contract liabilities. The Company makes use of the best estimates of future contractual cash flows and claims handling and administration expenses, as well as investment income from the assets backing such liabilities in evaluating the adequacy of the liability. Any deficiency is immediately charged to the profit or loss.

Al Fujairah National Insurance Company P.S.C. 26 Fujairah - United Arab Emirates Notes to the Financial Statements (continued) For the year ended December 31, 2009 5. Property and equipment

Motor vehicles

Furniture and office

equipments Total AED AED AED

Cost

At December 31, 2007 2,423,660 9,171,196 11,594,856 Additions 1,183,000 216,541 1,399,541 Disposals ( 423,200) - ( 423,200)

At December 31, 2008 3,183,460 9,387,737 12,571,197 Additions 1,772,800 553,186 2,325,986 Disposals ( 479,800) - ( 479,800)

At December 31, 2009 4,476,460 9,940,923 14,417,383

Accumulated depreciation

At December 31, 2007 1,665,474 6,870,005 8,535,479 Charge for the year 595,802 1,008,830 1,604,632 Eliminated on disposal ( 268,050) - ( 268,050)

At December 31, 2008 1,993,226 7,878,835 9,872,061 Charge for the year 763,374 627,501 1,390,875 Eliminated on disposal ( 350,969) - ( 350,969)

At December 31, 2009 2,405,631 8,506,336 10,911,967

Carrying amount At December 31, 2009 2,070,829 1,434,587 3,505,416

At December 31, 2008 1,190,234 1,508,902 2,699,136

The useful lives used in the calculation of depreciation of all property and equipment items are from 4 to 5 years.

Al Fujairah National Insurance Company P.S.C. 27 Fujairah - United Arab Emirates Notes to the Financial Statements (continued) For the year ended December 31, 2009 6. Properties under construction

2009 2008 AED AED

Balance, at the beginning of the year 26,073,883 18,177,065 Additions during the year 25,659,409 7,896,818 Balance, at the end of the year 51,733,292 26,073,883 ========= ========= Properties under construction mainly represent value of two plots of land in Fujairah and Dibba in addition to costs incurred towards construction of buildings thereon. These properties have been mortgaged with a local bank against a loan obtained to finance the construction of the buildings (Note 13).

7. Investment property

2009 2008

AED AED Fair value at the beginning and end of the year 21,370,000 21,370,000 ========= ========= Investment property represents the head office building of the Company which is located at Hamad Bin Abdullah street in Fujairah. The management is of the opinion that the fair value of investment property has not materially changed during the current year and accordingly no independent valuation was conducted. The property rental income earned by the Company from its investment property, which are leased under operating leases on an annual basis, and the direct operating expenses arising in the investment property are as follows:

Year ended December 31, 2009 2008

AED AED Rental income 1,303,054 1,146,956 Direct operating expenses ( 824,666) ( 838,653) 478,388 308,303 ========= =========


8. Investments in securities

a) Available-for-sale investments

2009 2008

AED AED Fair value, at the beginning of the year 164,544,987 99,987,475 Additions 115,062,940 235,050,087 Disposals (128,287,661) ( 39,935,835)

151,320,266 295,101,727 Decrease in fair value recognized directly in equity ( 7,925,678) (130,556,740)

Fair value, at the end of the year 143,394,588 164,544,987 ========= =========

Allocated as follows:

Quoted 126,380,387 147,712,396 Unquoted 17,014,201 16,832,591

143,394,588 164,544,987 ========= =========

Available-for-sale investments represent investments in securities issued and held within United Arab Emirates. b) Investments held for trading

2009 2008

AED AED

Fair value, at the beginning of the year 7,865,988 102,316,125 Purchased during the year - 603,478,113 Sold during the year ( 4,371,425) (690,034,715) Increase/ (decrease) in fair value 787,838 ( 7,893,535)

Fair value, at the end of the year 4,282,401 7,865,988 ========= =========

Investments held for trading represent investments in securities issued and held within United Arab Emirates. Investments in securities include investments with a fair value of AED 3,220,426 as of the reporting date (2008: AED 2,405,554) held in the name of a third party in trust and for the benefit of the Company.

Al Fujairah National Insurance Company P.S.C. 29 Fujairah - United Arab Emirates Notes to the Financial Statements (continued) For the year ended December 31, 2009 9. Insurance contract liabilities and re-insurance contract assets

December 31, 2009 2008

AED AED Gross Insurance contract liabilities: Claims reported unsettled 80,942,410 95,480,812 Claims incurred but not reported 10,000,000 10,000,000 Unearned premiums 95,440,236 116,728,800

Total insurance contract liabilities, gross 186,382,646 222,209,612 Recoverable from reinsurers Claims reported unsettled 30,148,518 30,508,592 Unearned premiums 17,445,343 24,049,224

Total reinsurers’ share of insurance liabilities 47,593,861 54,557,816 Net insurance contract liabilities 138,788,785 167,651,796 ========= ========== Comprise of the following:

Claims reported unsettled 50,793,892 64,972,220 Claims incurred but not reported 10,000,000 10,000,000 Unearned premiums 77,994,893 92,679,576

138,788,785 167,651,796 ========= =========

Al Fujairah National Insurance Company P.S.C. 30 Fujairah - United Arab Emirates

Notes to the Financial Statements (continued) For the year ended December 31, 2009

9. Insurance contract liabilities and re-insurance contract assets (continued)

Movements in the insurance contract liabilities and reinsurance contract assets during the year were as follows:

Year ended December 31, 2009 Year ended December 31, 2008 Gross Reinsurance Net Gross Reinsurance Net AED AED AED AED AED AED

Claims Notified claims 95,480,812 ( 30,508,592) 64,972,220 81,543,306 ( 32,750,680) 48,792,626 Incurred but not reported 10,000,000 - 10,000,000 10,000,000 - 10,000,000

Total at the beginning of the year 105,480,812 ( 30,508,592) 74,972,220 91,543,306 ( 32,750,680) 58,792,626 Claims settled during the year (225,758,445) 24,554,402 (201,204,043) (190,506,437) 31,512,549 (158,993,888) Increase in liabilities 211,220,043 ( 24,194,328) 187,025,715 204,443,943 ( 29,270,461) 175,173,482

Total at the end of the year 90,942,410 ( 30,148,518) 60,793,892 105,480,812 ( 30,508,592) 74,972,220 ========= ========= ========= ========= ========= =========

Notified claims 80,942,410 ( 30,148,518) 50,793,892 95,480,812 ( 30,508,592) 64,972,220 Incurred but not reported 10,000,000 - 10,000,000 10,000,000 - 10,000,000

Total at the end of the year 90,942,410 ( 30,148,518) 60,793,892 105,480,812 ( 30,508,592) 74,972,220 ========= ========= ========= ========= ========= ========= Unearned premium

Total at the beginning of the year 116,728,800 ( 24,049,224) 92,679,576 70,378,982 ( 18,744,726) 51,634,256

Increase during the year 422,916 ( 409,339) 13,577 46,366,598 1,080,879 47,447,477 Release during the year ( 21,711,480) 7,013,220 ( 14,698,260) ( 16,780) ( 6,385,377) ( 6,402,157)

Net (decrease)/ increase during the year (Note 16) ( 21,288,564) 6,603,881 ( 14,684,683) 46,349,818 ( 5,304,498) 41,045,320

Total at the end of the year 95,440,236 ( 17,445,343) 77,994,893 116,728,800 ( 24,049,224) 92,679,576 ========= ========= ========= ========= ========= =========

Al Fujairah National Insurance Company P.S.C. 31 Fujairah - United Arab Emirates Notes to the Financial Statements (continued) For the year ended December 31, 2009 10. Insurance and other receivables

December 31, 2009 2008

AED AED Receivables arising from insurance and reinsurance contracts:

Due from policy holders: Accounts receivable 41,963,057 37,881,805 Notes receivable-post dated cheques 19,771,909 22,485,433

61,734,966 60,367,238

Less: Allowance for doubtful debts ( 14,674,965) ( 6,781,442)

47,060,001 53,585,796 Due from insurance companies 9,841,115 9,280,827 Due from reinsurance companies 7,914,776 2,960,978

Other receivables: Prepayments and other receivables 5,975,068 4,090,737

70,790,960 69,918,338 ========= ========= The average credit period for balances due from policy holders is 60 days. Due from policyholders outstanding for more than 365 days are provided for partially or in full based on estimated irrecoverable amounts determined by reference to past default experience and prevailing economic conditions.

Due from policy holders over 365 days amounted to AED 7,548,903 as of December 31, 2009 (2008: AED 7,852,841).

Before accepting any new customer, the Company assesses the potential customer’s credit quality and defines his credit limits. Aging of due from policy holders:

December 31, 2009 2008

AED AED

Not past due 12,863,291 15,036,346

Past due but not impaired 60 to 365 days 14,050,863 14,992,618 More than 365 days 373,938 1,071,399

14,424,801 16,064,017 Past due and impaired 60 to 365 days 7,500,000 - More than 365 days 7,174,965 6,781,442

14,674,965 6,781,442

Total due from policy holders 41,963,057 37,881,805 ========= =========

Al Fujairah National Insurance Company P.S.C. 32 Fujairah - United Arab Emirates Notes to the Financial Statements (continued) For the year ended December 31, 2009 10. Insurance and other receivables (continued)

Movement of the allowance for doubtful debts during the year was as follows:

2009 2008 AED AED

Balance at January 1, 6,781,442 6,574,585 Add: Allowance for doubtful debts 7,893,523 206,857

Balance at December 31, 14,674,965 6,781,442 ========= ========= In determining the recoverability of an insurance receivable, the Company considers any change in the credit quality of the insurance receivable from the date credit was initially granted upto the reporting date. The concentration of credit risks is limited due to the customer base being large and unrelated. Accordingly, the directors believe that there is no further allowance required in excess of the already taken allowance for doubtful debts.

11. Bank balances and cash

December 31, 2009 2008

AED AED Bank balances: Call accounts 9,446,702 8,429,156 Fixed deposits 15,121,672 21,953,491

Cash on hand 186,000 373,437

24,754,374 30,756,084 ========= =========

Fixed deposits include an amount of AED 6,385,531 (2008: AED 4,845,280) held under lien against the mandatory statutory requirement of AED 6 million (2008: AED 4.5 million) maintained in accordance with of U.A.E. Federal Law No. 6 of 2007, concerning formation of Insurance Authority of U.A.E.

Fixed deposit amounting to AED 2 million (2008: AED 2 million) is under lien in respect of bank credit facilities granted to the Company (Note 20).

Al Fujairah National Insurance Company P.S.C. 33 Fujairah - United Arab Emirates Notes to the Financial Statements (continued) For the year ended December 31, 2009 12. Share capital

December 31, 2009 2008

AED AED

Issued and fully paid: 750,000 ordinary shares of AED 100 each 75,000,000 75,000,000

========= =========

13. Bank Borrowings

December 31, 2009 2008

AED AED

Loans 9,835,355 - ========= =========

The bank borrowings are repayable as follows: Within one year 6,000,000 - In the second year 3,835,355 -

9,835,355 - Less: Amount due for settlement within 12 months (shown under current liabilities) ( 6,000,000) -

Bank borrowings (due for settlement after 12 months from the reporting date) 3,835,355 - ========= ========= The Company entered in to a loan agreement with a local bank during 2009 to finance the cost of construction of Investment property in Fujairah and Dibba. Although an amount of AED 36 Million was sanctioned, only AED 9,835,355 has been availed up to December 31, 2009. The loan is secured by mortgaging the Dibba and Fujairah land and buildings, assignment of contractors all risk insurance policy for investment property under construction and assignment of rental income from the said buildings and issuance of promissory notes by the Company. The loan is repayable in 57 equal monthly installments of AED 750,000 each (inclusive of interest) from May 2010 onwards�

Interest rates on bank borrowings during 2009 ranged from 7% to 8%.

Al Fujairah National Insurance Company P.S.C. 34 Fujairah - United Arab Emirates Notes to the Financial Statements (continued) For the year ended December 31, 2009 14. Provision for employees’ end of service indemnity

Movements in the net liability were as follows:

2009 2008 AED AED

Balance, at the beginning of the year 6,745,038 5,613,248 Amounts charged to income 1,134,365 1,252,517 Amounts paid ( 89,599) ( 120,727) Balance, at the end of the year 7,789,804 6,745,038

========= ========= 15. Insurance and other payables

December 31, 2009 2008

AED AED

Payables arising from insurance and reinsurance contracts:

Trade payables 22,804,953 21,797,165 Notes payable 3,352,279 858,060 Due to insurance and reinsurance companies 20,303,802 17,686,888 Premium reserve withheld 7,670,750 7,741,665

Other payables:

Accrued expenses and provisions 2,600,028 1,661,565 Other payables 3,103,504 2,829,477

59,835,316 52,574,820 ========= =========

The average credit period is 90 days. The Company has financial risk management policies in place to ensure that all payables are paid within credit time frame.

Al Fujairah National Insurance Company P.S.C 35 Fujairah - United Arab Emirates Notes to the Financial Statements (continued) For the year ended December 31, 2009 16. Net insurance premium revenue


AED AED Gross premium written Gross premium written 238,606,831 292,314,220 Change in unearned premium (Note 9) 21,288,564 ( 46,349,818)

259,895,395 245,964,402 Reinsurance premium ceded Reinsurance premium ceded ( 44,206,543) ( 61,140,827)

Change in unearned premium (Note 9) ( 6,603,881) 5,304,498

( 50,810,424) ( 55,836,329)

Net insurance premium revenue 209,084,971 190,128,073 ========= ========= 17. Loss from investments and others


AED AED Unrealized gain/ (loss) from investments held for trading 787,838 ( 7,893,535)

Interest on bank deposits 971,866 454,811

Dividends from investments: Available for sale 2,287,697 3,164,632 Held for trading 334,266 1,614,885

Income from investment property 478,388 308,303

Loss on disposal of property and equipment ( 21,781) ( 26,576)

Profit from trading in investments 337,380 10,449,140

Impairment loss on available for sale investments ( 25,000,000) ( 24,800,000)

Sundry income 36,457 37,161

( 19,787,889) ( 16,691,179) ========= =========

Al Fujairah National Insurance Company P.S.C. 36 Fujairah - United Arab Emirates Notes to the Financial Statements (continued) For the year ended December 31, 2009 18. (Loss)/ profit for the year

(Loss)/ profit for the year has been arrived at after charging the following expenses:


AED AED

Staff costs 17,399,758 17,178,990 Depreciation of property and equipment 1,390,875 1,604,632 Rent expense 2,689,692 2,466,004

19. Basic (Loss)/earning per share

2009 2008

(Loss)/ profit for the year (in AED) ( 9,749,313) 10,172,806 ========= =========

Number of shares (share) 750,000 750,000

========= ========= Basic (loss)/earnings per share (in AED) (13) 13.56 ========= ========= Basic (loss)/earnings per share is calculated by dividing the (loss)/ profit for the year by the weighted average number of shares outstanding.

20. Cash and cash equivalents

Cash and cash equivalents at the end of the year as shown in the cash flow statement can be reconciled to the related items in the reporting as follows:

December 31, 2009 2008

AED AED Bank balances and cash (see note 11) 24,754,374 30,756,084 Deposit under lien ( 2,000,000) ( 2,000,000) Deposit against mandatory statutory requirements ( 6,385,531) ( 4,845,280)

16,368,843 23,910,804 ========= =========


21. Related party transactions

At the reporting date, amounts due from/to related parties included under due from policy holders and gross outstanding claims were as follows:

December 31, 2009 2008

AED AED Due from policy holders 3,539,318 4,844,765 ========= ========= Gross outstanding claims 1,023,627 402,130

========= =========

The amounts outstanding are unsecured and will be settled in cash. No guarantees have been received and no expense has been recognised in the year for bad or doubtful debts in respect of the amounts owed by related parties. Transactions: During the year, the Company entered into the following transactions with related parties:


AED AED Gross premium written 6,642,462 7,398,888 Claims paid during the year 1,105,110 1,716,083 Premiums are charged to related parties at rates agreed with the management.

Compensations of key management staff and Board of Directors


AED AED

Key management staff: Short-term benefits 3,771,951 3,686,978 Long-term benefits 359,127 521,921

Board of directors’ meeting allowance 260,000 260,000

Al Fujairah National Insurance Company P.S.C. 38 Fujairah - United Arab Emirates Notes to the Financial Statements (continued) For the year ended December 31, 2009 22. Contingent liabilities

December 31, 2009 2008

AED AED Letters of guarantees 6,703,061 5,162,810 Capital commitments 15,896,168 41,637,263

22,599,229 46,800,073 ========= =========

23. Insurance risk

The risk under any one insurance contract is the possibility that the insured event occurs and the uncertainty of the amount of the resulting claim. By the nature of an insurance contract, this risk is random and therefore unpredictable. For a portfolio of insurance contracts where the theory of probability is applied to pricing and provisioning, the principal risk that the Company faces under its insurance contracts is that the actual claims and benefit payments exceed the carrying amount of the insurance liabilities. This could occur because the frequency or severity of claims and benefits are greater than estimated. Insurance events are random and the actual number and amount of claims and benefits will vary from year to year from the estimate established using statistical techniques. Experience shows that the larger the portfolio of similar insurance contracts, the smaller the relative variability about the expected outcome will be. In addition, a more diversified portfolio is less likely to be affected across the board by a change in any subset of the portfolio. The Company has developed its insurance underwriting strategy to diversify the type of insurance risks accepted and within each of these categories to achieve a sufficiently large population of risks to reduce the variability of the expected outcome. The Company manages risks through its underwriting strategy, adequate reinsurance arrangements and proactive claims handling. The underwriting strategy attempts to ensure that the underwritten risks are well diversified in terms of type and amount of risk, industry and geography. Underwriting limits are in place to enforce appropriate risk selection criteria. Frequency and severity of claims The Company has the right not to renew individual policies, re-price the risk, it can impose deductibles and it has the right to reject the payment of a fraudulent claim. Insurance contracts also entitle the Company to pursue third parties for payment of some or all costs (for example, subrogation).

Al Fujairah National Insurance Company P.S.C. 39 Fujairah - United Arab Emirates Notes to the Financial Statements (continued) For the year ended December 31, 2009 23. Insurance risk (continued)

Frequency and severity of claims (continued) Property insurance contracts are underwritten by reference to the commercial replacement value of the properties and contents insured, and claim payment limits are always included to cap the amount payable on occurrence of the insured event. Cost of rebuilding properties, of replacement or indemnity for contents and time taken to restart operations for business interruption are the key factors that influence the level of claims under these policies. Property insurance contracts are subdivided into four risk categories: fire, business interruption, weather damage and theft. The insurance risk arising from these contracts is not concentrated in any of the territories in which the Company operates, and there is a balance between commercial and personal properties in the overall portfolio of insured buildings. The reinsurance arrangements include excess and catastrophe coverage. The effect of such reinsurance arrangements is that the Company should not suffer net insurance losses above a set limit of AED 500,000 in any one policy. The Company has survey units dealing with the mitigation of risks surrounding claims. This unit investigates and recommends ways to improve risk claims. The risks are reviewed individually at least once in 3 years and adjusted to reflect the latest information on the underlying facts, current law, jurisdiction, contractual terms and conditions, and other factors. The Company actively manages and pursues early settlements of claims to reduce its exposure to unpredictable developments. Sources of uncertainty in the estimation of future claim payments

Claims on insurance contracts are payable on a claims-occurrence basis. The Company is liable for all insured events that occurred during the term of the contract, even if the loss is discovered after the end of the contract term. As a result, liability claims are settled over a long period of time and element of the claims provision includes incurred but not reported claims (IBNR). The estimation of IBNR is generally subject to a greater degree of uncertainty than the estimation of the cost of settling claims already notified to the Company, where information about the claim event is available. IBNR claims may not be apparent to the insured until many years after the event that gave rise to the claims. For some insurance contracts, the IBNR proportion of the total liability is high and will typically display greater variations between initial estimates and final outcomes because of the greater degree of difficulty of estimating these liabilities. In estimating the liability for the cost of reported claims not yet paid, the Company considers information available from loss adjusters and information on the cost of settling claims with similar characteristics in previous periods. Large claims are assessed on a case-by-case basis or projected separately in order to allow for the possible distortive effect of their development and incidence on the rest of the portfolio.


Sources of uncertainty in the estimation of future claim payments (continued) The estimated cost of claims includes direct expenses to be incurred in settling claims, net of the expected subrogation value and other recoveries. The Company takes all reasonable steps to ensure that it has appropriate information regarding its claims exposures. However, given the uncertainty in establishing claims provisions, it is likely that the final outcome will prove to be different from the original liability established. The amount of insurance claims is particularly sensitive to the level of court awards and to the development of legal precedent on matters of contract and tort. Insurance contracts are also subject to the emergence of new types of latent claims, but no allowance is included for this at the reporting date. Where possible, the Company adopts multiple techniques to estimate the required level of provisions. This provides a greater understanding of the trends inherent in the experience being projected. The projections given by the various methodologies also assist in estimating the range of possible outcomes. The most appropriate estimation technique is selected taking into account the characteristics of the business class and the extent of the development of each accident year. In calculating the estimated cost of unpaid claims (both reported and not), the Company’s estimation techniques are a combination of loss-ratio-based estimates and an estimate based upon actual claims experience using predetermined formulae where greater weight is given to actual claims experience as time passes. The initial loss-ratio estimate is an important assumption in the estimation technique and is based on previous years’ experience, adjusted for factors such as premium rate changes, anticipated market experience and historical claims inflation. The initial estimate of the loss ratios used for the current year (before reinsurance) are analysed below by type of risk where the insured operates for current and prior year premiums earned. Type of risk 2009 2008

Motor 75-80% 75-80% Non-Motor 70-75% 50-55%

Al Fujairah National Insurance Company P.S.C. 41 Fujairah - United Arab Emirates

Notes to the Financial Statements (continued) For the year ended December 31, 2009

23. Insurance risk (continued)

Process used to decide on assumptions The risks associated with these insurance contracts are complex and subject to a number of variables that complicate quantitative sensitivity analysis. Internal data is derived mostly from the Company’s quarterly claims reports and screening of the actual insurance contracts carried out at the reporting date to derive data for the contracts held. The Company has reviewed the individual contracts and in particular the industries in which the insured companies operate and the actual exposure years of claims. This information is used to develop scenarios related to the latency of claims that are used for the projections of the ultimate number of claims. The choice of selected results for each accident year of each class of business depends on an assessment of the technique that has been most appropriate to observed historical developments. In certain instances, this has meant that different techniques or combinations of techniques have been selected for individual accident years or groups of accident years within the same class of business. Concentration of insurance risk Substantially all of the Company’s underwriting activities are carried out in the United Arab Emirates. The insurance risk before and after reinsurance in relation to the motor and non-motor insurance risk accepted is summarized below:

Year ended December 31, 2009 Year ended December 31, 2008 Motor Non-Motor Total Motor Non-motor Total AED’000 AED’000 AED’000 AED’000 AED’000 AED’000

Gross 4,366,819 23,149,293 27,516,112 5,509,752 49,908,656 55,418,408 Net 4,235,814 4,204,722 8,440,536 5,266,772 7,210,585 12,477,357

Reinsurance risk

In common with other insurance companies, in order to minimize financial exposure arising from large insurance claims, the Company, in the normal course of business, enters into arrangement with other parties for reinsurance purposes.

To minimize its exposure to significant losses from reinsurer insolvencies, the Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities or economic characteristics of the reinsurers. Reinsurance ceded contracts do not relieve the Company from its obligations to policyholders. The Company remains liable to its policyholders for the portion reinsured to the extent that any reinsurer does not meet the obligations assumed under the reinsurance agreements.


Sensitivity of underwriting profit and losses The contribution by the insurance operations in the profit of the Company amounts to AED 23.1 million for the year ended December 31, 2009 (2008: AED 33.6 million). The company does not foresee any major impact from insurance operations due to the following reasons:

The Company has an overall risk retention level of 30% (2008: 23%) and the same is mainly contributed by one class of business i.e., Motor line wherein the retention level is 97% (2008: 100%). However, in this class the liabilities are adequately covered by excess of loss reinsurance programs to guard against major financial impact.

The Company has net commission earnings of AED 22 million (2008: AED 39 million). These commissions arise primarily from the reinsurance placements and are a consistent and recurring source of income.

Because of low risk retention in 23% (2008: 23%) volume of business and limited exposure in high retention areas like motor, the Company is comfortable to maintain a net loss ratio in the region of 85%-90% (2008: 85% - 90%) and does not foresee any serious financial impact in the insurance net profit.

24. Capital risk management

The Company’s objectives when managing capital are:

• to comply with the insurance capital requirements required by UAE Federal Law No. 6 of 2007, concerning formation of Insurance Authority of U.A.E. The Company manages its capital on a basis of 150% - 200% of its minimum regulatory capital position presented in the table below. Management considers the quantitative threshold of 15% - 20% sufficient to maximise Shareholders’ return and to support the capital required;

• to safeguard the Company’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 insurance contracts commensurately with the level of risk.

Al Fujairah National Insurance Company P.S.C. 43 Fujairah - United Arab Emirates Notes to the Financial Statements (continued) For the year ended December 31, 2009 24. Capital risk management (continued)

In U.A.E., the local insurance regulator specifies the minimum amount and type of capital that must be held by the Company in addition to its insurance liabilities. The minimum required capital (presented in the table below) must be maintained at all times throughout the year. The Company is subject to local insurance solvency regulations with which it has complied with during the year. The Company has incorporated in its policies and procedures the necessary tests to ensure continuous and full compliance with such regulations.

The table below summarises the minimum required capital of the Company and the total capital held.

December 31, 2009 2008 AED AED

Total capital held 103,581,771 96,256,762 ========= =========

Minimum regulatory capital 50,000,000 50,000,000 ========= =========

The capital structure of the Company consists of bank loan, bank balances and cash and equity comprising issued capital, statutory reserve, general reserve, cumulative change in fair value and retained earnings. The Insurance Authority of U.A.E. has announced the new minimum capital requirement of AED 100 million for insurance companies to be applicable by January 2013. The gearing ratio at the end of the reporting period was as follows:

December 31, 2009 2008 AED AED

Debt (i) 9,835,355 - Bank balances and cash (see Note 11) ( 24,754,374) -

Excess of bank balances and cash over debt ( 14,919,019) - ========= =========

Equity (ii) 103,581,771 - ========= ========= (i) Debt is defined as bank borrowings (see Note 13). (ii) Equity includes capital and reserves of the Company.


25. Financial instruments

The Company is exposed to a range of financial risks through its financial assets, financial liabilities, reinsurance assets and insurance liabilities. In particular, the key financial risk is that the in the long-term its investment proceeds are not sufficient to fund the obligations arising from its insurance and investment contracts. The most important components of this financial risk are interest rate risk, equity price risk, foreign currency risk and credit risk. These risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements. The risks that the Company primarily faces due to the nature of its investments and liabilities are interest rate risk and equity price risk. Significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 3 to the financial statements. Categories of financial instruments

December 31, 2009

Assets Loans and receivables

Held for trading

Available for-sale Total

AED AED AED AED Available-for-sale investments - - 143,394,588 143,394,588 Insurance and other receivables 70,790,960 - - 70,790,960 Investments held for trading - 4,282,401 - 4,282,401 Bank balances and cash 24,754,374 - - 24,754,374

Total assets 95,545,334 4,282,401 143,394,588 243,222,323

Liabilities At amortized

cost AED

Bank borrowings 9,835,355 Insurance and other payables 59,835,316

Total liabilities 69,670,671 ==========


25. Financial instruments (continued)

Categories of financial instruments (continued)

December 31, 2008

Assets Loans and receivables

Held for trading

Available for-sale Total

AED AED AED AED Available-for-sale investments - - 164,544,987 164,544,987 Insurance and other receivables 69,918,338 - - 69,918,338 Investments held for trading - 7,865,988 - 7,865,988 Bank balances and cash 30,756,084 - - 30,756,084

Total assets 100,674,422 7,865,988 164,544,987 273,085,397

Liabilities At amortized

cost AED

Insurance and other payables 52,574,820 =========== Management considers that the carrying amounts of financial assets and financial liabilities recorded in the financial statements approximate their fair values. The fair values of financial assets and financial liabilities are determined as follows: • The fair values of financial assets and financial liabilities with standard terms and

conditions and traded on active liquid markets are determined with reference to quoted market prices.

• The fair values of other financial assets and financial liabilities are determined in

accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions and dealer quotes for similar instruments.

Al Fujairah National Insurance Company P.S.C. 46 Fujairah - United Arab Emirates Notes to the Financial Statements (continued) For the year ended December 31, 2009 25. Financial instruments (continued)

Categories of financial instruments (continued) The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable: • Level 1 fair value measurements are those derived from quoted prices (unadjusted) in

active markets for identical assets or liabilities;

• Level 2 fair value measurements are those derived from 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); and

• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). •

Level 1 Level 2 Level 3 Total

AED AED AED AED

Available-for-sale investments Quoted equities 126,380,387 - - 126,380,387 Unquoted equities - - 17,014,201 17,014,201 Held for trading investments Quoted equities 4,282,401 - - 4,282,,401

130,662,788 - 17,014,201 147,676,989

• There were no transfers between each of level during the year. There are no financial liabilities which should be measured at fair value and accordingly no disclosure is made in the above table.


Market risk The Company’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. Market risk exposures are measured using sensitivity analysis. There has been no change to the Company’s exposure to market risks or the manner in which it manages and measures the risk. Market risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices, whether those changes are caused by factors specific to the individual security, or its issuer, or factors affecting all securities traded in the market. The Company is exposed to market risk with respect to its investments held by it directly or through investment managers. Foreign currency risk There are no significant exchange rate risks as substantially all financial assets and financial liabilities are denominated in Arab Emirates Dirhams, other G.C.C. currencies or US Dollars to which the Dirham is fixed Credit risk Credit risk refers to the risk that a counter party will default on its contractual obligations resulting in financial loss to the Company. Key areas where the Company is exposed to credit risk are: • reinsurers’ share of insurance liabilities; • amounts due from reinsurers in respect of claims already paid; • amounts due from insurance contract holders; and • amounts due from insurance intermediaries; The Company has adopted a policy of dealing with creditworthy counterparties as a means of mitigating the risk of financial loss from defaults. The Company’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the management annually.


Credit risk (continued) Reinsurance is used to manage insurance risk. This does not, however, discharge the Company’s liability as primary insurer. If a reinsurer fails to pay a claim for any reason, the Company remains liable for the payment to the policyholder. The creditworthiness of reinsurers is considered on an annual basis by reviewing their financial strength prior to finalisation of any contract. The Company maintains records of the payment history for significant contract holders with whom it conducts regular business. The exposure to individual counterparties is also managed by other mechanisms, such as the right of offset where counterparties are both debtors and creditors of the Company. Management information reported to the Company includes details of provisions for impairment on insurance receivables and subsequent write-offs. Exposures to individual policyholders and groups of policyholders are collected within the ongoing monitoring of the controls. Where there exists significant exposure to individual policyholders, or homogenous groups of policyholders, a financial analysis equivalent to that conducted for reinsurers is carried out by the Company. Insurance receivables consist of a large number of customers, spread across diverse industries and geographical areas. Ongoing credit evaluation is performed on the financial condition of insurance receivable. The Company has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers. The Company defines counterparties as having similar characteristics if they are related entities. Concentration of credit risk did not exceed 30% of gross monetary assets at any time during the year. The credit risk on liquid funds is limited because the counterparties are banks with sound reputation. The carrying amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the Company’s maximum exposure to credit risk.


Credit risk (continued) Liquidity risk Ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the management of the Company’s short, medium and long-term funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate reserves by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The following table summarises the maturity profile of the Company’s financial instruments. The contractual maturities of the financial instruments have been determined on the basis of the remaining period at the end of the reporting period to the contractual maturity date. The maturity profile is monitored by management to ensure adequate liquidity is maintained. The maturity profile of the assets and liabilities at the reporting date based on contractual repayment arrangements was as follows: 2009 2009 2009 2009 Less than 30 days 30-90 days 90-180 days After 180 days AED AED AED AED Available-for-sale investments - - - 143,394,588 Insurance and other receivables 14,236,872 30,122,094 19,023,870 7,408,124

Investments held-for-trading 1,712,961 223,311 1,123,344 1,222,785 Bank balances and cash - non interest bearing 9,632,702 - - -

Bank balances and cash - interest bearing 13,121,672 - 2,000,000 -

38,704,207 30,345,405 22,147,214 152,025,497 Insurance and other payables 20,089,845 15,660,070 9,978,628 14,106,773 Bank borrowings - - 1,500,000 8,335,355 20,089,845 15,660,070 11,478,628 22,442,128



Liquidity risk (continued)

2008 2008 2008 2008 Less than 30 days 30-90 days 90-180 days After 180 days AED AED AED AED Available-for-sale investments - - - 164,544,987 Insurance and other receivables 19,599,102 13,756,531 11,985,708 24,576,997

Investments held-for-trading 275,310 416,897 849,527 6,324,254 Bank balances and cash - non interest bearing 8,802,593 - - -

Bank balances and cash - interest bearing 19,953,491 - 2,000,000 -

48,630,496 14,173,428 14,835,235 195,446,238 Insurance and other payables 4,646,454 16,592,232 10,181,360 21,154,774

Interest risk The Company’s exposure to interest rate risk relates to its bank deposits and bank borrowings. At December 31, 2009, bank deposits carried interest rates ranging from 5.75% to 6% per annum (2008: 3.5% to 6% per annum) ) and bank borrowings carried an interest rate of 7% per annum. If interest rates had been 50 basis points lower throughout the year and all other variables were held constant, the Company’s profit for the year ended December 31, 2009 and Shareholders‘ equity as at December 31, 2009 would decrease by approximately AED 485,933 (2008: decrease by AED 227,000). The Company’s sensitivity to interest rates has not changed significantly from the prior year.



Sensitivity analysis At the reporting date if the equity prices are 10% higher/lower as per the assumptions mentioned below and all the other variables were held constant the Company’s: • profit would have increased/decreased by AED 0.4 million (2008: AED 0.7 million)

in the case of investments held for trading. • comprehensive income would have increased/decreased by AED 14.3 million (2008:

AED 16.4 million) in the case of available-for-sale investments. Method and assumptions for sensitivity analysis

• The sensitivity analysis has been done based on the exposure to equity price risk

as at the reporting date.

• As at the reporting date if equity prices are 10% higher/lower on the market value uniformly for all equities while all other variables are held constant, the impact on profit or loss and Shareholders‘ equity has been shown above.

• A 10% change in equity prices has been used to give a realistic assessment as a plausible event.

26. Segment information

The Company is organised into two main business segments: Underwriting of general insurance business incorporating all classes of general insurance including fire, marine, motor, medical, general accident and miscellaneous. Investments incorporating investments in U.A.E. marketable equity securities, term deposits with banks, investment properties, trading investments and other securities.


26. Segment information (continued)

December 31, 2009

Underwriting Accident and

liabilities Fire Inland and

Marine Total Investments Total AED AED AED AED AED AED

Segment revenue 224,088,509 10,885,795 3,632,527 238,606,831 - 238,606,831 Segment result (net) 18,518,307 2,750,376 1,926,103 23,194,786 ( 19,787,889) 3,406,897 Unallocated costs (net) ( 13,156,210) Loss for the year ( 9,749,313) Segment assets 122,667,222 235,124,968 357,792,190 Unallocated assets 9,632,702 Total assets 367,424,892 Segment liabilities 246,217,962 9,835,355 256,053,317 Unallocated liabilities 7,789,804

Total liabilities 263,843,121

There are no transactions between the business segments.


26. Segment information (continued)

December 31, 2008

Underwriting Accident and

liabilities Fire Inland and

Marine Total Investments Total AED AED AED AED AED AED

Segment revenue 276,749,243 10,534,756 5,030,221 292,314,220 - 292,314,220 Segment result (net) 30,157,509 1,846,288 1,657,374 33,661,171 ( 16,691,179) 16,969,992 Unallocated costs (net) ( 6,797,186)

Profit for the year 10,172,806 Segment assets 132,342,142 236,641,497 368,983,639 Unallocated assets 8,802,593

Total assets 377,786,232 Segment liabilities 274,784,432 - 274,784,432 Unallocated liabilities 6,745,038

Total liabilities 281,529,470

There are no transactions between the business segments.

Al Fujairah National Insurance Company P.S.C. 54 Fujairah - United Arab Emirates Notes to the Financial Statements (continued) For the year ended December 31, 2009 26. Segment information (continued)

The Company’s underwriting business and the investments are mainly based within United Arab Emirates.

27. Approval of financial statements The financial statements were approved by the Board of Directors and authorised for issue

on March 30, 2010.

al fujairah national insurance company p.s.c....

Documents