Financial Analysis of Reported Earnings As of 31 December 2014 UAE National Insurance & Takaful Companies

Transcription

1 Financial Analysis of Reported Earnings As of 31 December 2014 UAE National Insurance & Takaful Companies 22 April 2015 P. O. Box 9881, Dubai, United Arab Emirates

2 EXECUTIVE SUMMARY Taha Actuaries & Consultants examined the Financial Statements of twenty-nine (29) listed, locally incorporated, National companies as of year-end 2014 and compared them to year-end Those Financial Statements form the basis for this year-end 2014 report. Seven (7) Takaful companies and twenty-two (22) Conventional companies comprise the twenty-nine companies included in our analysis. While we tried to compute trends and ratios for the market as a whole, our Takaful analysis was greatly affected by the results of one company: Islamic Arab Insurance Co. (SALAMA). SALAMA constitutes 34% of Gross Takaful premium in 2014, down from 47% as of year-end On the other hand, Conventional companies were less affected by the large players since the largest Conventional company by Gross Premium as of year-end 2014 (Oman Insurance) is only 24% of total Conventional Gross Premium, a steady ratio from year-end Total Gross Premium as of 31 December 2014 was AED 15.9 billion, 9% higher than the yearend 2013 Total Gross Premium. However, totals and averages hide the variation between companies and sectors: Gross Premium for Conventional companies increased from AED 12.4 billion, as of 31 December 2013, to AED 13.8 billion, as of 31 December 2014, an 11% increase. Gross Premium for Takaful companies decreased from AED 2.2 billion on 31 December 2013 to AED 2.1 billion on 31 December 2014, a 3% drop. However, this drop was driven by the fall of SALAMA's Gross Premium which decreased from AED 1.03 billion as of year-end 2013 to AED 0.73 billion at year-end 2014, a 29% decrease. On the other hand, Dar Al Takaful (DARTAK) increased by 42%, National Takaful Company (Watania) (WATAN) increased by 48%, and Takaful Emarat (TAKEM) increased by 84%, an impressive increase. As of 31 December 2014, these twenty-nine companies possessed AED billion of Assets in total against Liabilities of AED billion. As compared to year-end 2013, Assets increased by 9% while Liabilities increased by 11%. Share Capital decreased by 2% to AED 2.04 billion for Takaful companies due to Takaful Emarat (TAKEM) decreasing its Share Capital by AED 50 million. On the other hand, Share Capital increased by 3% to AED 4.45 billion for Conventional insurance companies due to four (4) companies increasing their Share Capital: Al Wathba National Insurance Company (AWNIC) by AED 27 million, Orient Insurance Company (ORIENT) by AED 95 million, Arabian Scandinavian Insurance Company (ASCANA) by AED 14 million, and Ras Al Khaimah National Insurance Company (RAKNIC) by AED 10 million. Equity, on a consolidated basis, increased from AED billion to AED billion from year-end 2013 to year-end 2014, an increase of 7%. However, while some Conventional companies increased their Equity significantly, four companies decreased their Equity by an average 22% from year-end Similarly, two Takaful companies decreased their equity during

3 Three (3) Conventional and five (5) Takaful companies are at higher risk as their Equity is below their Share Capital level. Equity as percentage of Assets on average is higher for Conventional companies (45%) compared to their Takaful counterparts (32%). However, this ratio decreased from 47% as of year-end 2013 for Conventional companies while it increased from 30% for Takaful companies. The industry's one-year Return on Assets is 3%, Return on Share Capital is 18% and Return on Equity is 6%. As compared to 31 December 2013, the Net Profit figure has improved for both Conventional and Takaful companies. Four (4) Conventional companies and two (2) Takaful companies reported negative Net Profit as of year-end In total, Takaful companies are relying less on reinsurance (and/or retakaful) than Conventional companies; however, as we pointed out previously, this is driven by the high retention of SALAMA. There are varying levels of reinsurance ratios for Conventional and Takaful companies, ranging from 29% for Ras Al Khaimah National Insurance Company (RAKNIC) to 70% for Orient, the highest of any company in the market. For Takaful companies, the range is from 7% for Takaful Emarat to 64% for AMAN. We calculated Loss Ratios for each company in the list on Gross and Net of Reinsurance basis. Loss Ratio is defined as follows: While Net Loss Ratio for all companies is 72% as of the year-end 2014, Reinsurance Loss Ratio is only 58% for those same companies in total. Taha concludes that, in total, Reinsurance is not being used effectively to hedge the risk for those companies, especially since this has been a trend for several years. Of course there are variations between the companies, and for some, the picture is more complicated when you consider other factors, such as commission. However, we believe that with actuarial modeling, most of the companies could improve their bottom line with better utilization of reinsurance. The industry, on a whole, incurred 3% more General and Administrative Expenses as of yearend 2014 compared to year-end This is good news given that Gross Premium increased by 9% and Net Premium increased by 8% for the same period. Conventional companies increased their General and Administrative Expenses by 7%, totaling AED 1.45 billion, while Takaful companies decreased their General and Administrative Expenses by 12%, totaling AED 0.39 billion. 3

4 Net Commission of Takaful companies improved as of 31 December 2014, although it is still negative. For Conventional companies, however, there s a decrease of 54% in their Net Commission for year-end 2014, with the figure remaining positive. All of the above are market trends and totals on a consolidated basis. However, totals can hide a lot of the interesting details and variations between companies. For a better understanding of the particulars of each company, please read Taha's more detailed analysis below. INTRODUCTION Insurance and Takaful companies operating in the UAE are legally structured as either National companies or as branches of foreign companies. In this analysis, Taha Actuaries & Consultants will focus on financial statements of twenty-nine (29) listed, locally incorporated, National companies, out of which seven (7) are Takaful companies. Our analysis uses the data from financial statements, as of 31 December The statements were downloaded from one of the following websites: Dubai Financial Market ( Abu Dhabi Securities Exchange ( Unfortunately, the data for branches of foreign companies or the non-listed locally incorporated National companies is not available publically. Hence, these companies are not included in this analysis. For uniformity and comparison between Conventional and Takaful companies, we referred to Contribution as Premium and to Retakaful as Reinsurance throughout the report. Our analysis will cover the major aspects of each company's financial statement, including: Reporting and analyzing key figures of the Balance Sheet such as, Assets, Liabilities, Share Capital and Equity Calculating the ratio of Net Profit to these key Balance Sheet numbers Analyzing important numbers from the Income Statement and presenting both Underwriting results and Net Profit for the period compared to year-end 2013 Presenting a Reinsurance Analysis which compares Reinsurance Premium to Gross Premium Reporting on General and Administrative Expenses and Net Commission as of yearend 2014 compared to year-end For these analyses, we have presented consolidated figures for all Conventional companies and Takaful companies separately. These total figures could act as benchmarks for any of the companies to compare their performance to that of the industry. 4

5 BALANCE SHEET HIGHLIGHTS Table 1a provides figures of Assets and Liabilities for Conventional companies whose Financial Statements are listed on one of the above mentioned websites. The figures provided are company-wide values as of 31 December 2014 and 31 December As of 31 December 2014, Assets and Liabilities of Conventional companies have increased by 12% and 16%, respectively, compared to the figures as of 31 December The largest increase in Assets, as of year-end 2014, is 27%, reported by Dubai National Insurance and Reinsurance (DNIR). The highest increase in Liabilities, as of year-end 2014, is 49%, reported by Abu Dhabi National Insurance Company (ADNIC). DNIR s Assets increased due to significant growth in its Financial Assets (quoted and unquoted securities). Meanwhile, ADNIC s liabilities grew due to the significant increase of its 'Insurance Contract Liabilities'. Two (2) Conventional companies Al Buhaira National Insurance Company (ABNIC) and Sharjah Insurance Company (SICO) reported decreases in both their Assets and Liabilities. 5

6 Table 1a Financial Statement Analysis of UAE National Conventional Companies Balance Sheet Highlights as of 31 December 2014 Figures in AED million Assets Liabilities Dec-14 Dec-13 % Change Dec-14 Dec-13 % Change Abu Dhabi National Insurance Company PSC 5,556 4,742 17% 3,921 2,628 49% Al Ain Ahlia Insurance Company - Public Shareholding Company 1,885 1,762 7% % Al Buhaira National Insurance Company P.S.C. 1,769 1,935-9% 1,117 1,327-16% Al Dhafra Insurance Company P.S.C % % Al Fujairah National Insurance Company P.S.C % % Al Khazna Insurance Company P.S.C % % Al-Sagr National Insurance Company (Public Shareholding Company) 1,402 1,262 11% % Al Wathba National Insurance Company PJSC 1,390 1,175 18% % Alliance Insurance PSC 1,214 1,166 4% % Orient Insurance Company PJSC and its subsidiaries 4,315 3,431 26% 2,049 1,762 16% Arabian Scandinavian Insurance Company P.L.C % % Dubai Insurance Company (PSC) % % Dubai National Insurance and Reinsurance (P.S.C.) % % Emirates Insurance Company P.S.C 2,018 1,894 7% % Green Crescent Insurance Company PJSC % % Insurance House P.S.C % % National General Insurance Co. (P.S.C.) % % Oman Insurance Company P.S.C. 6,023 5,110 18% 4,020 3,314 21% Ras Al Khaimah National Insurance Company P.S.C % % Sharjah Insurance Company P.S.C % % Union Insurance Company P.S.C % % United Insurance Company P.S.C % % Total Conventional Companies 33,237 29,640 12% 18,397 15,804 16% 6

7 Table 1b Financial Statement Analysis of UAE National Takaful Companies Balance Sheet Highlights as of 31 December 2014 Figures in AED million Assets Liabilities Dec-14 Dec-13 % Change Dec-14 Dec-13 % Change Abu Dhabi National Takaful Company PSC % % Dar Al Takaful PJSC % % Dubai Islamic Insurance and Reinsurance Co. (Aman) (PSC) % % Islamic Arab Insurance Co. (Salama) and its subsidiaries 3,592 4,304-17% 2,353 3,077-24% Methaq Takaful Insurance Company PSC % % National Takaful Company (Watania) PJSC % % Takaful Emarat - Insurance (PJSC) % % Total Takaful Companies 5,979 6,340-6% 4,059 4,445-9% All Companies 39,216 35,980 9% 22,456 20,249 11% Table 1b provides figures of Assets and Liabilities for Takaful companies as of 31 December 2014 and 31 December As of year-end 2014, Assets and Liabilities of Takaful companies decreased by 6% and 9%, respectively. Only Islamic Arab Insurance Co. (SALAMA) experienced a decrease in both Assets (17%) and Liabilities (24%). Takaful Emarat - Insurance (TAKEM) reported the highest increase in both Assets (45%) and Liabilities (70%). Table 2a provides detail on Share Capital and Equity for Conventional companies as of 31 December 2014 and 31 December Share Capital remained unchanged for the majority of Conventional companies as of year-end 2014, with only four (4) companies reporting increases. In total, Share Capital of Conventional companies stands at AED 4.4 billion, a 3% increase from 31 December

8 Taha Actuaries & Consultant Total Equity for Conventional companies is AED 14.8 billion which provides a cushion to the industry in the event a payout to fulfill Liabilities exceeds the allotted amount. When compared to the 31 December 2013 figure, total Equity for Conventional companies increased by 7% by year-end 2014, despite Equity for four (4) Conventional companies decreasing as of this period. 8

9 Table 2a Financial Statement Analysis of UAE National Conventional Companies Balance Sheet Highlights as of 31 December 2014 Figures in AED million Share Capital Equity Dec-14 Dec-13 % Change Dec-14 Dec-13 % Change Abu Dhabi National Insurance Company PSC % 1,634 2,115-23% Al Ain Ahlia Insurance Company - Public Shareholding Company % 1,196 1,140 5% Al Buhaira National Insurance Company P.S.C % % Al Dhafra Insurance Company P.S.C % % Al Fujairah National Insurance Company P.S.C % % Al Khazna Insurance Company P.S.C % % Al-Sagr National Insurance Company (Public Shareholding Company) % % Al Wathba National Insurance Company PJSC % % Alliance Insurance PSC % % Orient Insurance Company PJSC and its subsidiaries % 2,266 1,669 36% Arabian Scandinavian Insurance Company P.L.C % % Dubai Insurance Company (PSC) % % Dubai National Insurance and Reinsurance (P.S.C.) % % Emirates Insurance Company P.S.C % 1,097 1,018 8% Green Crescent Insurance Company PJSC % % Insurance House P.S.C % % National General Insurance Co. (P.S.C.) % % Oman Insurance Company P.S.C % 2,004 1,796 12% Ras Al Khaimah National Insurance Company P.S.C % % Sharjah Insurance Company P.S.C % % Union Insurance Company P.S.C % % United Insurance Company P.S.C % % Total Conventional Companies 4,447 4,301 3% 14,841 13,836 7% 9

10 Table 2b Financial Statement Analysis of UAE National Takaful Companies Balance Sheet Highlights as of 31 December 2014 Figures in AED million Share Capital Equity Dec-14 Dec-13 % Change Dec-14 Dec-13 % Change Abu Dhabi National Takaful Company PSC % % Dar Al Takaful PJSC % % Dubai Islamic Insurance and Reinsurance Co. (Aman) (PSC) % % Islamic Arab Insurance Co. (Salama) and its subsidiaries 1,210 1,210 0% 1,239 1,227 1% Methaq Takaful Insurance Company PSC % % National Takaful Company (Watania) PJSC % % Takaful Emarat - Insurance (PJSC) % % Total Takaful Companies 2,036 2,086-2% 1,920 1,895 1% All Companies 6,483 6,387 2% 16,760 15,731 7% Table 2b above provides values for Share Capital and Equity for Takaful Companies as of 31 December 2014 and 31 December Share Capital of Takaful companies decreased by 2% as of year-end Islamic Arab Insurance Co. (SALAMA) still possesses the highest amount of Share Capital of all companies industry-wide, with holdings of AED 1.2 billion. Compared to December 2013, total Equity for Takaful companies increased by 1%, totaling AED 2.0 billion. Two (2) Takaful companies reported a decrease in their Equity while the remainder reported increases. 10

11 BALANCE SHEET RATIOS AND RETURNS Table 3a presents Equity as Percentage of Assets for Conventional companies as of 31 December 2014 and 31 December The table also shows one-year return for Conventional companies on Assets, Share Capital and Equity for Equity as Percentage of Assets tells us how much assets a company holds over and above their liabilities. The higher the ratio, the lower the risk the company possesses. The consolidated ratio for Conventional companies is 45% for year-end For the majority of companies, the ratio remained fairly stable between 31 December 2013 and 31 December 2014 with only minor changes for the period. However, Green Crescent Insurance Company (GCIC) experienced a significant growth of 37% in its Equity as a Percentage of Assets ratio, while United Insurance Company's (UIC) and Abu Dhabi National Insurance Company s (ADNIC) ratios decreased significantly by 17% and 15%, respectively. Arabian Scandinavian Insurance Company (ASCANA) has the highest ratio of Equity as a percentage of Assets amongst Conventional companies with 78%. Return on Assets is calculated by dividing Net Profit by average assets for the period under review. Return on Assets for all Conventional Companies, on a consolidated basis, is 3%. Four (4) companies, namely Abu Dhabi National Insurance Company (ADNIC), Al Khazna Insurance Company (AKIC), Insurance House (IH), and United Insurance Company (UIC), experienced a negative return on Assets of -5%, -8%, -8%, and -17%, respectively. The remainder of the Conventional companies showed a Return on Assets ranging from 0% to 9%. Return on Share Capital explains how efficiently a company utilizes its capital. This ratio is calculated by dividing Net Profit by average Share Capital for the period under review. Return on Capital for all Conventional companies, on a consolidated basis, is 18% for year-end Five (5) companies, namely Al Wathba National Insurance Company (AWNIC), Orient Insurance Company (AOIC), Emirates Insurance Company (EIC), National General Insurance Co (NGI), and Oman Insurance Company (OIC), reported a Return on Capital of 50% or more. Return on Equity is calculated by dividing Net Profit by average equity for the period under review. Industry-wide, Conventional companies' Return on Equity is 6% as of year-end National General Insurance Co (NGI) and Ras Al Khaimah National Insurance Company (RAKNIC) have both shown a Return on Equity of more than 15%. 11

12 Table 3a Financial Statement Analysis of UAE National Conventional Companies Balance Sheet Ratios and Returns Figures in AED million Equity as % of Assets Net Profit One-year Return on As of Dec Share Dec-14 Dec-13 Assets 2014 Capital Equity Abu Dhabi National Insurance Company PSC 29% 45% (280) -5% -75% -15% Al Ain Ahlia Insurance Company - Public Shareholding Company 63% 65% 65 4% 43% 6% Al Buhaira National Insurance Company P.S.C. 37% 31% 38 2% 15% 6% Al Dhafra Insurance Company P.S.C. 47% 49% 42 5% 42% 11% Al Fujairah National Insurance Company P.S.C. 50% 47% 18 4% 18% 9% Al Khazna Insurance Company P.S.C. 48% 54% (68) -8% -16% -15% Al-Sagr National Insurance Company (Public Shareholding Company) 47% 49% 56 4% 24% 9% Al Wathba National Insurance Company PJSC 63% 62% 109 9% 56% 14% Alliance Insurance PSC 35% 34% 48 4% 48% 12% Orient Insurance Company PJSC and its subsidiaries 53% 49% 252 7% 56% 13% Arabian Scandinavian Insurance Company P.L.C. 78% 78% 31 8% 21% 10% Dubai Insurance Company (PSC) 60% 55% 30 4% 30% 7% Dubai National Insurance and Reinsurance (P.S.C.) 64% 58% 36 6% 31% 10% Emirates Insurance Company P.S.C 54% 54% 103 5% 77% 10% Green Crescent Insurance Company PJSC 73% 36% 0 0% 0% 0% Insurance House P.S.C 46% 55% (21) -8% -17% -16% National General Insurance Co. (P.S.C.) 50% 47% 80 8% 53% 17% Oman Insurance Company P.S.C. 33% 35% 229 4% 50% 12% Ras Al Khaimah National Insurance Company P.S.C. 47% 45% 38 8% 36% 16% Sharjah Insurance Company P.S.C. 67% 63% 6 1% 4% 2% Union Insurance Company P.S.C. 40% 46% 44 6% 13% 13% United Insurance Company P.S.C. 27% 44% (52) -17% -52% -48% Total Conventional Companies 45% 47% 804 3% 18% 6% 12

13 Table 3b presents Equity as Percentage of Assets for Takaful companies as of 31 December 2014 and 31 December The table also shows Return for Takaful companies on Assets, Share Capital and Equity. For Takaful companies, the ratio of Equity as Percentage of Assets is only 32% as of 31 December 2014 compared to 45% for Conventional companies. Table 3b Financial Statement Analysis of UAE National Takaful Companies Balance Sheet Ratios and Returns Figures in AED million Equity as % of Assets Net Profit One-year Return on As of Dec Share Dec-14 Dec-13 Assets 2014 Capital Equity Abu Dhabi National Takaful Company PSC 34% 36% 36 6% 36% 18% Dar Al Takaful PJSC 23% 29% 5 2% 5% 8% Dubai Islamic Insurance and Reinsurance Co. (Aman) (PSC) 21% 23% 0 0% 0% 0% Islamic Arab Insurance Co. (Salama) and its subsidiaries 34% 29% 44 1% 4% 4% Methaq Takaful Insurance Company PSC 26% 28% (2) -1% -1% -2% National Takaful Company (Watania) PJSC 35% 50% (10) -3% -7% -8% Takaful Emarat - Insurance (PJSC) 33% 43% 8 4% 6% 11% Total Takaful Companies 32% 30% 81 1% 4% 4% All Companies 43% 44% 885 2% 14% 5% For Takaful companies, Returns on Assets, Share Capital and Equity for the period are 1%, 4%, and 4% respectively, on a consolidated basis. The low returns are due to a low Net Profit for the whole group of Takaful companies. Two (2) companies Methaq Takaful Insurance Company (METHAQ) and National Takaful Company (Watania) (WATAN) reported negative net profits. For the rest of the Takaful companies, positive net profits were reported on an individual basis. 13

14 INCOME STATEMENT - NET PROFIT Table 4a presents different Income Statement figures for Conventional companies as of 31 December 2014 and 31 December Conventional companies registered, from 31 December 2013 to 31 December 2014, a 10% increase in their Net Premiums Earned and a 22% increase in their Net Incurred Claims, which is a worrying sign. There are significant variances between companies for both Net Premium Earned and Net Incurred Claims. For Net Premium Earned, there are decreases of 9% to increases of 63%. For Net Incurred Claims, there are decreases of 8% to increases of 76%. 14

15 Table 4a Financial Statement Analysis of UAE National Conventional companies Income Statement - Net Profit Figures in AED million Net Premium Earned Net Incurred Claims Net Underwriting Income Net Profit Dec-14 Dec-13 % Change Dec-14 Dec-13 % Change Dec-14 Dec-13 % Change Dec-14 Dec-13 % Change Abu Dhabi National Insurance Company PSC 1,482 1,348 10% 1,563 1,049 49% (127) % (280) % Al Ain Ahlia Insurance Company - Public Shareholding Co % % % % Al Buhaira National Insurance Company P.S.C % % % % Al Dhafra Insurance Company P.S.C % % % % Al Fujairah National Insurance Company P.S.C % % % % Al Khazna Insurance Company P.S.C % % % (68) (163) 58% Al-Sagr National Insurance Company (Public Shareholding % % % % Al Wathba National Insurance Company PJSC % % % % Alliance Insurance PSC % % % % Orient Insurance Company PJSC and its subsidiaries % % % % Arabian Scandinavian Insurance Company P.L.C % % % % Dubai Insurance Company (PSC) % % % % Dubai National Insurance and Reinsurance (P.S.C.) % % % % Emirates Insurance Company P.S.C % % % % Green Crescent Insurance Company PJSC % % % 0 (5) 101% Insurance House P.S.C % % (6) % (21) % National General Insurance Co. (P.S.C.) % % % % Oman Insurance Company P.S.C. 1,454 1,332 9% 1, % % % Ras Al Khaimah National Insurance Company P.S.C % % % % Sharjah Insurance Company P.S.C % % (11) 4-347% 6 5 6% Union Insurance Company P.S.C % % % % United Insurance Company P.S.C % % (44) % (52) 8-714% Total Conventional Companies 6,421 5,819 10% 5,201 4,253 22% 1,287 1,709-25% 804 1,286-37% 15

16 Actuarially speaking, we like to compare Net Premium Earned to Net Incurred Claims. While most companies reported their numbers in this way, some companies showed their numbers without specifying the change in unearned premiums or change in outstanding claims. As in our previous reports, we assumed for the sake of consistency that all Net Premiums are Net Earned and all Net Claims are Net Incurred Claims. Taha s definition of Net Underwriting Income is the income of the company before all expenses and investment income are considered. Some companies report Net Underwriting Income before any expenses, while some others report it after accounting for expenses, either underwriting expenses only or all expenses in total. Thus, in order to be able to make fair comparisons, we excluded all expenses from Net Underwriting Income (except Commission expenses) and added them later for the calculation of Net Profit. As a result, while the Net Profit will match each company s reported financials, Net Underwriting Income might not. Net Underwriting Income demonstrates the skill that a company has in running its core business: insurance underwriting. For Conventional companies on a consolidated basis, the total Net Underwriting Income as of 31 December 2014 is AED 1.29 billion, a 25% decrease year-on-year. There are several companies with significant reductions in their Net Underwriting Income. Net Profit is one of the most important indicators on an Income Statement. On a consolidated basis, Conventional companies had AED 804 million in Net Profit as of 31 December 2014, compared to AED 1.3 billion as of 31 December 2013, a decrease of 37%. On an individual basis, the results are mixed: some companies showed remarkable improvement in their Net Profit while others have significant decreases year-on-year. Al Buhaira National Insurance Company (ABNIC) has shown the most substantial improvement over the year, increasing its Net Profit from AED 10.4 million to AED 38.2 million. On the other hand, three (3) companies, namely Abu Dhabi National Insurance Company (ADNIC), Insurance House (IH), and United Insurance Company (UIC) reported positive Net Profit as of 31 December 2013, but all are reporting negative figures a year later. 16

17 Table 4b Financial Statement Analysis of UAE National Takaful companies Income Statement - Net Profit Figures in AED million Net Premium Earned Net Incurred Claims Net Underwriting Income Net Profit Dec-14 Dec-13 % Change Dec-14 Dec-13 % Change Dec-14 Dec-13 % Change Dec-14 Dec-13 % Change Abu Dhabi National Takaful Company PSC % % % % Dar Al Takaful PJSC % % % % Dubai Islamic Insurance and Reinsurance Co. (Aman) (PS % % 14 (19) 174% 0 (55) 101% Islamic Arab Insurance Co. (Salama) and its subsidiaries % % % 37 (60) 161% Methaq Takaful Insurance Company PSC % % 24 (9) 370% (2) 3-183% National Takaful Company (Watania) PJSC % % % (10) (2) -309% Takaful Emarat - Insurance (PJSC) % % % 8 (17) 147% Total Takaful Companies 1,339 1,390-4% % % 74 (97) 176% All Companies 7,760 7,209 8% 5,983 5,206 15% 1,620 1,926-16% 878 1,189-26% Table 4b presents different Income Statement figures for Takaful companies as of 31 December 2014 and 31 December Takaful companies experienced a 4% reduction in their Net Premiums Earned and an 18% reduction in their Net Incurred Claims, from 2013 to The main factor behind the lower Net Premium Earned and Net Incurred Claims figures as a whole is that Islamic Arab Insurance Co (SALAMA) reported significant decreases of 34% and 52%, respectively, in these values. On a consolidated basis, Net Underwriting Income for Takaful companies increased from AED 217 million as of 31 December 2013 to AED 333 million as of 31 December No Takaful company reported a decrease in Net Underwriting Income. Five (5) Takaful companies reported positive Net Profit while two (2) reported Net Losses. On a consolidated basis, Takaful companies reported a Net Profit gain of AED 74 million as of 31 December 2014, compared to the Net Profit loss of AED 97 million for the same period in 2013, a 176% increase year-on-year. 17

18 REINSURANCE RATIOS Table 5a summarizes reinsurance activities of Conventional companies and compares their performance as of 31 December 2014 with that of 31 December Gross Premium increased by 11% and Reinsurance Premium increased by 12%, on a consolidated basis for all Conventional companies. Reinsurance Premium as a percentage of Gross Premium has remained steady at 51% from December 2013 to December Among all the Conventional companies, Orient Insurance Company (AOIC), Al Ain Ahlia Insurance Company (ALAIN), Dubai Insurance Company (DIN), and Dubai National Insurance and Reinsurance (DNIR) have the highest ratios of Reinsurance Premium as Percentage of Gross Premium, ranging from 65% to 70%, as of 31 December Table 5b summarizes reinsurance activities of the Takaful companies and compares their performance as of 31 December 2014 with that of 31 December For Takaful companies, Gross Premium decreased by 3% while Reinsurance Premium increased by 7% year-on-year. Reinsurance Premium as Percentage of Gross Premium increased from 34% to 38% for the same period. Among all the Takaful companies, Dubai Islamic Insurance and Reinsurance Co. (AMAN) has the highest ratio of Reinsurance Premium as Percentage of Gross Premium at 64%, as of 31 December The same ratio for Takaful Emarat - Insurance (TAKEM) was only 7% for the same period. As of 31 December 2014, Takaful companies in total have lower Reinsurance levels (38%) than their Conventional counterparts (51%). 18

19 Table 5a Financial Statement Analysis of UAE National Conventional companies Reinsurance Ratios Figures in AED million Gross Premium Reinsurance Premium Reins Prem as % of Gross Prem Dec-14 Dec-13 % Change Dec-14 Dec-13 % Change Dec-14 Dec-13 Abu Dhabi National Insurance Company PSC 2,631 2,406 9% 1,200 1,004 20% 46% 42% Al Ain Ahlia Insurance Company - Public Shareholding Company % % 65% 59% Al Buhaira National Insurance Company P.S.C % % 57% 59% Al Dhafra Insurance Company P.S.C % % 35% 39% Al Fujairah National Insurance Company P.S.C % % 29% 26% Al Khazna Insurance Company P.S.C % % 47% 62% Al-Sagr National Insurance Company (Public Shareholding Company) % % 39% 42% Al Wathba National Insurance Company PJSC % % 48% 52% Alliance Insurance PSC % % 56% 55% Orient Insurance Company PJSC and its subsidiaries 1,802 1,597 13% 1,259 1,115 13% 70% 70% Arabian Scandinavian Insurance Company P.L.C % % 29% 33% Dubai Insurance Company (PSC) % % 66% 71% Dubai National Insurance and Reinsurance (P.S.C.) % % 65% 61% Emirates Insurance Company P.S.C % % 49% 51% Green Crescent Insurance Company PJSC % % 55% 43% Insurance House P.S.C % % 28% 29% National General Insurance Co. (P.S.C.) % % 30% 31% Oman Insurance Company P.S.C. 3,249 2,920 11% 1,670 1,471 14% 51% 50% Ras Al Khaimah National Insurance Company P.S.C % % 29% 37% Sharjah Insurance Company P.S.C % % 58% 52% Union Insurance Company P.S.C % % 50% 59% United Insurance Company P.S.C % % 38% 26% Total Conventional companies 13,753 12,425 11% 7,040 6,288 12% 51% 51% 19

20 Table 5b Financial Statement Analysis of UAE National Takaful companies Reinsurance Ratios Figures in AED million Gross Premium Reinsurance Premium Reins Prem as % of Gross Prem Dec-14 Dec-13 % Change Dec-14 Dec-13 % Change Dec-14 Dec-13 Abu Dhabi National Takaful Company PSC % % 57% 60% Dar Al Takaful PJSC % % 34% 30% Dubai Islamic Insurance and Reinsurance Co. (Aman) (PSC) % % 64% 65% Islamic Arab Insurance Co. (Salama) and its subsidiaries 731 1,030-29% % 27% 23% Methaq Takaful Insurance Company PSC % % 9% 8% National Takaful Company (Watania) PJSC % % 60% 53% Takaful Emarat - Insurance (PJSC) % % 7% 14% Total Takaful Companies 2,137 2,212-3% % 38% 34% All Companies 15,891 14,636 9% 7,844 7,041 11% 49% 48% LOSS RATIOS Table 6a shows Gross, Reinsurance and Net Loss Ratios for Conventional companies. Gross Loss Ratio is calculated by dividing Gross Incurred Claims by Gross Earned Premium. Reinsurance Loss Ratio is calculated by dividing Reinsurance Incurred Claims by Reinsurance Earned Premium. Finally, Net Loss Ratio is calculated by dividing Net Incurred Claims by Net Earned Premium. For Conventional companies, Net Loss Ratio is higher than Reinsurance Loss Ratio: 81% versus 56%, respectively, as of 31 December This shows that Conventional companies are not using reinsurance in an optimal way. 20

21 Table 6a Financial Statement Analysis of UAE National Conventional companies Loss Ratios Gross Loss Ratio Reinsurance Loss Ratio Net Loss Ratio Dec-14 Dec-13 Dec-14 Dec-13 Dec-14 Dec-13 Abu Dhabi National Insurance Company PSC 107% 68% 109% 55% 105% 78% Al Ain Ahlia Insurance Company - Public Shareholding Company 49% 44% 37% 27% 71% 71% Al Buhaira National Insurance Company P.S.C. 79% 95% 59% 85% 108% 110% Al Dhafra Insurance Company P.S.C. 59% 64% 28% 42% 78% 78% Al Fujairah National Insurance Company P.S.C. 68% 67% 25% 20% 84% 84% Al Khazna Insurance Company P.S.C. 73% 43% 67% 24% 80% 70% Al-Sagr National Insurance Company (Public Shareholding Company) 68% 78% 50% 60% 92% 91% Al Wathba National Insurance Company PJSC 73% 69% 66% 60% 79% 78% Alliance Insurance PSC 46% 38% 20% 12% 90% 85% Orient Insurance Company PJSC and its subsidiaries 36% 39% 35% 38% 47% 51% Arabian Scandinavian Insurance Company P.L.C. 57% 75% 47% 101% 62% 61% Dubai Insurance Company (PSC) 55% 53% 57% 56% 51% 47% Dubai National Insurance and Reinsurance (P.S.C.) 46% 46% 41% 44% 56% 52% Emirates Insurance Company P.S.C 48% 52% 34% 47% 62% 58% Green Crescent Insurance Company PJSC 76% 71% 85% 79% 70% 63% Insurance House P.S.C 117% 83% 190% 153% 102% 65% National General Insurance Co. (P.S.C.) 72% 73% 50% 84% 79% 75% Oman Insurance Company P.S.C. 59% 62% 53% 58% 73% 71% Ras Al Khaimah National Insurance Company P.S.C. 54% 50% 52% 43% 54% 58% Sharjah Insurance Company P.S.C. 90% 78% 32% 45% 157% 124% Union Insurance Company P.S.C. 45% 55% 45% 54% 53% 62% United Insurance Company P.S.C. 119% 84% 81% 62% 138% 92% Total Conventional companies 67% 61% 56% 52% 81% 73% 21

22 Table 6b shows Gross Loss Ratio, Reinsurance Loss Ratio and Net Loss Ratio for Takaful companies. Experience of Takaful companies, on the whole, is different from their Conventional counterparts. Net Loss Ratio is lower than Reinsurance Loss Ratio: 58% versus 77%, hinting an optimal use of reinsurance. However, as with all averages, there are significant variations between the companies. Table 6b Financial Statement Analysis of UAE National Takaful companies Loss Ratios Gross Loss Ratio Reinsurance Loss Ratio Net Loss Ratio Dec-14 Dec-13 Dec-14 Dec-13 Dec-14 Dec-13 Abu Dhabi National Takaful Company PSC 49% 39% 58% 44% 38% 33% Dar Al Takaful PJSC 69% 71% 70% 63% 68% 73% Dubai Islamic Insurance and Reinsurance Co. (Aman) (PSC) 60% 52% 48% 23% 82% 105% Islamic Arab Insurance Co. (Salama) and its subsidiaries 111% 100% 138% 59% 46% 63% Methaq Takaful Insurance Company PSC 77% 95% 78% 85% 77% 96% National Takaful Company (Watania) PJSC 69% 61% 66% 72% 74% 76% Takaful Emarat - Insurance (PJSC) 52% 66% 37% 59% 55% 69% Total Takaful Companies 80% 79% 77% 47% 58% 69% All Companies 68% 64% 58% 51% 77% 72% 22

23 EXPENSES AND NET COMMISSION Table 7a presents figures for General and Administrative Expenses, Net Commission, and Expense Ratio for all of the Conventional companies included in the study. Net Commission is equal to the difference between Commission Income from the reinsurers and Commission Expenses incurred by the companies. Expense Ratio is defined as the ratio of General and Administrative Expenses over the Net Premium earned for the period. On a consolidated basis, Conventional companies incurred 7% more in Expenses and 54% less in Net Commission when comparing figures as of 31 December 2013 and 31 December However, the experience per company varies. Also, the Expense Ratio for Conventional companies remained the same at 23% of their Net Premium earned for both year-ends. In general, companies with larger Premium volume were able to benefit from the economies of scale, and hence, able to achieve relatively lower Expense Ratios. However, this was not the case for all of the companies, as the ratio differs on a company by company basis. National General Insurance Co. (NGI) reported the lowest Expense Ratio figure as of year-ends 2013 and 2014, at 17% for both years. The highest expense ratio is 63%, reported by Al Khazna Insurance Company (AKIC). 23

24 Table 7a Financial Statement Analysis of UAE National Conventional Companies Expenses and Net Commission Figures in AED million General and Administrative Expense Net Commission Expense Ratio Dec-14 Dec-13 % Change Dec-14 Dec-13 % Change Dec-14 Dec-13 Abu Dhabi National Insurance Company PSC % (46.1) (16.8) -175% 18% 18% Al Ain Ahlia Insurance Company - Public Shareholding Company % % 25% 23% Al Buhaira National Insurance Company P.S.C % % 19% 22% Al Dhafra Insurance Company P.S.C % % 18% 18% Al Fujairah National Insurance Company P.S.C % % 26% 26% Al Khazna Insurance Company P.S.C % % 63% 96% Al-Sagr National Insurance Company (Public Shareholding Company) % % 19% 18% Al Wathba National Insurance Company PJSC % % 24% 21% Alliance Insurance PSC % % 20% 22% Orient Insurance Company PJSC and its subsidiaries % % 32% 28% Arabian Scandinavian Insurance Company P.L.C % (2.2) (1.7) -29% 33% 31% Dubai Insurance Company (PSC) % (14.4) (12.6) -14% 21% 21% Dubai National Insurance and Reinsurance (P.S.C.) % 1.3 (0.0) 4962% 30% 32% Emirates Insurance Company P.S.C % (35.8) (14.3) -151% 20% 22% Green Crescent Insurance Company PJSC % (4.4) (3.8) -13% 45% 72% Insurance House P.S.C % (4.3) (10.0) 57% 42% 34% National General Insurance Co. (P.S.C.) % (5.5) % 17% 17% Oman Insurance Company P.S.C % (63.6) (30.7) -107% 20% 23% Ras Al Khaimah National Insurance Company P.S.C % (12.5) (9.0) -39% 24% 18% Sharjah Insurance Company P.S.C % % 32% 34% Union Insurance Company P.S.C % % 40% 56% United Insurance Company P.S.C % % 22% 18% Total Conventional Companies 1,446 1,347 7% % 23% 23% 24

25 Dec-14 Dec-13 % Change Dec-14 Dec-13 % Change Dec-14 Dec-13 Abu Dhabi National Takaful Company PSC * % N/A N/A N/A 25% 33% Dar Al Takaful PJSC % (7.6) (7.3) -4% 30% 25% Dubai Islamic Insurance and Reinsurance Co. (Aman) (PSC) % (9.1) (13.3) 31% 36% 48% Islamic Arab Insurance Co. (Salama) and its subsidiaries % (148.5) (192.6) 23% 35% 29% Methaq Takaful Insurance Company PSC % (33.5) (12.9) -160% 11% 21% National Takaful Company (Watania) PJSC % (5.6) (1.0) -477% 39% 55% Takaful Emarat - Insurance (PJSC) % (30.6) (13.2) -132% 26% 46% Total Takaful Companies % (235) (240) 2% 29% 32% * Commission paid figure not available separately Table 7b Financial Statement Analysis of UAE National Takaful Companies Expenses and Net Commission Figures in AED million General and Administrative Expense Net Commission Expense Ratio All Companies 1,835 1,789 3% (169) (97) -74% 24% 25% Table 7b shows figures for General and Administrative Expenses, Net Commission, and Expense Ratio for Takaful companies. Takaful companies, on a consolidated basis, reported a decrease of 12% in General and Administrative Expenses as of year-end 2014, compared to the same period in 2013; however, there are three (3) companies Dar Al Takaful (DARTAK), Methaq Takaful Insurance Company (METHAQ), and National Takaful Company (Watania) (WATAN) that reported increases on an individual level. Net Commission by Takaful companies is 2% higher year-on-year, although still a negative figure. The expense ratio in total for Takaful companies decreased to 29% as of year-end 2014, compared to 32% as of year-end

26 CONCLUSION Taha Actuaries & Consultants reviewed the financial results as of year-end 2014 for twentynine (29) Conventional and Takaful companies and compared the figures to year-end It is important to note that the industry s Net Profit decreased for Conventional companies, while it increased to positive Net Profits for Takaful companies for the period under review. Meanwhile, Net Premium Earned and Net Claims Incurred increased for Conventional companies but decreased for Takaful companies for this period. In addition, we identified the industry's less than optimal use of reinsurance which leads us to conclude that the insurance companies need to reexamine their reinsurance programs and bring them in line with their claims experience. Conventional companies reported higher expenses for the period, while Takaful companies reduced their General & Administrative expense. Meanwhile, Net Commission dropped for Conventional companies, but has improved for Takaful companies; although Takaful s figure is still negative, as of the year-end of *** We hope this report and analysis is of value to you and your companies. Please provide any feedback using the contact details below: Taha Actuaries & Consultants Churchill Tower, Office 3410 P.O. Box 9881 Dubai, UAE info@tahaconsulting.com