AL FUJAIRAH NATIONAL INSURANCE COMPANY P.S.C. Review report and interim financial information for the period ended 31 March 2013

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2 AL FUJAIRAH NATIONAL INSURANCE COMPANY P.S.C. Review report and interim financial information for the period ended 31 March 2013

3 Al Fujairah National Insurance Company P.S.C. Review report and interim financial information for the period ended 31 March 2013 Contents Page Report on review of interim financial information 1 Condensed statement of financial position 2 Condensed statement of income (unaudited) 3 Condensed statement of comprehensive income (unaudited) 4 Condensed statement of changes in equity 5 Condensed statement of cash flows (unaudited)

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6 Al Fujairah National Insurance Company P.S.C. 3 Condensed statement of income (unaudited) for the period ended 31 March 2013 Note Three month period ended 31 March Insurance premium revenue 12 39,540,191 41,318,586 Insurance premium ceded to re-insurers 12 (10,447,220) (10,769,682) Net insurance premium revenue 12 29,092,971 30,548,904 Gross claims incurred (26,529,942) (23,042,987) Insurance claims recovered from re-insurers 3,553,016 1,840,977 Net claims incurred (22,976,926) (21,202,010) Gross commission earned 9,545,736 9,520,106 Less: commission incurred (1,817,298) (2,842,374) Net commission earned 7,728,438 6,677,732 Underwriting profit 13,844,483 16,024,626 General and administrative expenses relating to underwriting activities (5,831,160) (5,377,672) Net underwriting profit 8,013,323 10,646,954 Income from investments and others 1,496,217 1,593,675 Unallocated general and administrative expenses (1,457,790) (1,344,418) Allowance for doubtful debts - (1,500,000) Finance cost (417,164) (510,395) Profit for the period 7,634,586 8,885,816 Basic earnings per share The accompanying notes form an integral part of these condensed financial statements.

7 Al Fujairah National Insurance Company P.S.C. 4 Condensed statement of comprehensive income (unaudited) for the period ended 31 March 2013 Three month period ended 31 March Profit for the period 7,634,586 8,885,816 Other comprehensive (loss)/income Net fair value (loss)/gain on investments designated at FVTOCI (2,419,708) 2,855,128 Other comprehensive (loss)/income for the period (2,419,708) 2,855,128 Total comprehensive income for the period 5,214,878 11,740,944 The accompanying notes form an integral part of these condensed financial statements.

8 Al Fujairah National Insurance Company P.S.C. 5 Condensed statement of changes in equity for the period ended 31 March 2013 Share capital Statutory reserve General reserve Cumulative changes in fair values Property revaluation reserve Retained earnings Total Balance at 31 December 2011 (audited) 75,000,000 17,584,359 13,739,199 (87,625,162) 11,205,588 49,223,084 79,127,068 Profit for the three month period ended 31 March ,885,816 8,885,816 Other comprehensive income for the period ,855, ,855,128 Total comprehensive income for the period ,855,128-8,885,816 11,740,944 Balance at 31 March 2012 (unaudited) 75,000,000 17,584,359 13,739,199 (84,770,034) 11,205,588 58,108,900 90,868,012 Balance at 31 December 2012 (audited) 100,000,000 19,444,343 15,599,183 (76,084,468) 11,205,588 64,102, ,267,600 Profit for the three month period ended 31 March ,634,586 7,634,586 Other comprehensive loss for the period (2,419,708) - - (2,419,708) Total comprehensive income for the period (2,419,708) - 7,634,586 5,214,878 Approved cash dividends (Note 14) (7,500,000) (7,500,000) Balance at 31 March 2013 (unaudited) 100,000,000 19,444,343 15,599,183 (78,504,176) 11,205,588 64,237, ,982,478 The accompanying notes form an integral part of these condensed financial statements.

9 Al Fujairah National Insurance Company P.S.C. 6 Condensed statement of cash flows (unaudited) for the period ended 31 March 2013 Three month period ended 31 March Cash flows from operating activities Profit for the period 7,634,586 8,885,816 Adjustments for: Depreciation of property and equipment 592, ,827 Provision for employees end of service indemnity 683, ,848 Gain on disposal of property and equipment (4,500) - Income on investments at FVTPL (80,015) (514,299) Other investment income (1,411,702) (1,079,376) Finance costs 417, ,395 Operating cash flow before changes in operating assets and liabilities 7,830,751 8,506,211 Increase in reinsurance contract assets (10,200,181) (8,107,145) Increase in insurance contracts liabilities 15,692,993 6,764,089 Increase in insurance and other receivables (16,423,447) (24,333,403) Increase in insurance and other payables 5,894,673 11,664,871 Cash generated from/(used in) operations 2,794,789 (5,505,377) Employees end of service indemnity paid (44,169) (275,550) Interest paid (417,164) (510,395) Net cash generated from/(used in) operating activities 2,333,456 (6,291,322) Cash flows from investing activities Purchase of property and equipment (413,461) (319,324) Increase in investment in fixed deposits with maturity over 3 months (277,980) - Purchase of investment in securities (2,516,390) (992,329) Proceeds from sale of investments 2,516,693 1,110,743 Proceeds from disposal of property and equipment 4,500 - Interest received 441, ,780 Dividends received - 4,866 Income from investment property 970, ,731 Net cash generated from investing activities 725, ,467 Cash flows from financing activities (Decrease)/ increase in bank borrowings (1,739,013) 2,346,602 Cash (used in)/ generated from financing activities (1,739,013) 2,346,602 Net increase /(decrease) in cash and cash equivalents 1,319,507 (3,066,253) Cash and cash equivalents, at the beginning of the period 4,958,282 17,178,054 Cash and cash equivalents, at the end of the period (Note 9) 6,277,789 14,111,801 The accompanying notes form an integral part of these condensed financial statements.

10 Al Fujairah National Insurance Company P.S.C. 7 for the period ended 31 March General 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 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 regulation of its operations 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 and short term life assurance. The Company operates through its head office in Fujairah and branch offices in Dubai, Abu Dhabi, Sharjah and Dibba. 2. New and revised International Financial Reporting Standards (IFRSs) in issue but not yet effective and not early adopted The Company has not early applied the following new standards, amendments and interpretations that have been issued but not yet effective: New and revised IFRSs Amendments to IAS 32 Financial Instruments: Presentation relating to application guidance on the offsetting of financial assets and financial liabilities. Amendments to IFRS 10, IFRS 12 and IAS 27 Guidance on Investment Entities Effective for annual periods beginning on or after 1 January January 2014 On 31 October 2012, the IASB published a standard on investment entities, which amends IFRS 10, IFRS 12, and IAS 27 and introduces the concept of an investment entity in IFRSs. The amendments establish an exception to IFRS 10 s general consolidation principle for investment entities, requiring them to measure particular subsidiaries at fair value through profit or loss, rather than consolidate them. In addition, the amendments outline required disclosures for reporting entities that meet the definition of an investment entity. Management anticipates that these new standards, interpretations and amendments will be adopted in the Company s financial statements for the period beginning 1 January 2014 or as and when they are applicable and adoption of these new standards, interpretations and amendments may have no material impact on the financial statements of the Company in the period of initial application.

11 Al Fujairah National Insurance Company P.S.C. 8 for the period ended 31 March 2013 (continued) 3. Summary of significant accounting policies 3.1. Basis of preparation These condensed financial statements have been prepared in accordance with International Accounting Standard (IAS) No. 34, Interim Financial Reporting and also comply with the applicable requirements of the laws in the U.A.E. The condensed financial statements are presented in U.A.E. Dirhams () since that is the currency in which the majority of the Company s transactions are denominated. These condensed financial statements have been prepared on the historical cost basis, except for the revaluation of financial instruments and investment property. The accounting policies, presentation and methods in these condensed financial statements are consistent with those used in the audited financial statements for the year ended 31 December These condensed financial statements do not include all the information required for full annual financial statements and should be read in conjunction with the Company s audited annual financial statements as at and for the year ended 31 December In addition, results for the three month period ended 31 March 2013 are not necessarily indicative of the results that may be expected for the financial year ending 31 December As required by the Securities and Commodities Authority ( SCA ) notification dated 12 October 2008, accounting policies relating to property and equipment, investment property, financial assets at fair value through profit or loss (FVTPL) and financial assets at fair value through other comprehensive income (FVTOCI) have been disclosed in the condensed financial statements. 3.2 Property and equipment Capital work in progress is stated at cost, less any impairment loss. Depreciation of these assets, on the same basis as other property assets commences when the assets are ready for their intended use. Other property and equipment are carried at cost less accumulated depreciation and any identified impairment losses. Depreciation is charged so as to write off the cost of assets, other than capital work in progress, 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 profit or loss. The useful lives used in the calculation of depreciation of property and equipment, other than capital work in progress was as follows: Years Motor vehicles, furniture and office equipments 4-5 Fujairah scrap yard improvements 5-10.

12 Al Fujairah National Insurance Company P.S.C. 9 for the period ended 31 March 2013 (continued) 3. Summary of significant accounting policies (continued) 3.3 Investment property Investment property is property held to earn rentals and/or for capital appreciation including properties under construction for such purposes. Investment property is measured initially at cost, including transaction costs. Cost includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met; and excludes the cost of day to day servicing of an investment property. Subsequent to initial recognition, investment property is stated at fair value, which reflects market conditions at the reporting date. Gains or losses arising from changes in the fair value of investment property are included in the profit or loss in the period in which they arise. Investment property is derecognised when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognised in the profit or loss in the period of retirement or disposal. Transfer is made to or from investment property only when there is a change in use evidenced by the end of owner-occupation, commencement of an operating lease to another party. For a transfer from investment property to owner occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. If owner occupied property becomes an investment property, the Company accounts for such property in accordance with the policy stated under property and equipment up to the date of the change in use. 3.4 Financial assets at fair value through profit or loss (FVTPL) Investments in equity instruments are mandatorily classified as at FVTPL, unless the Company designates an investment that is not held for trading as at fair value through other comprehensive income (FVTOCI) on initial recognition. Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any gains or losses arising on remeasurement recognised in profit or loss. Dividend income on investments in equity instruments at FVTPL is recognised in profit or loss when the Company s right to receive the dividends is established in accordance with IAS 18 Revenue. 3.5 Financial assets at fair value through other comprehensive income (FVTOCI) At initial recognition, the Company can make an irrevocable election (on an instrument-by-instrument basis) to designate investments in equity instruments as at FVTOCI. Designation at FVTOCI is not permitted if the equity investment is held for trading. A financial asset is held for trading if: it has been acquired principally for the purpose of selling it in the near term; or on initial recognition it is part of a portfolio of identified financial instruments that the Company manages together and has evidence of a recent actual pattern of short-term profit-taking; or it is a derivative that is not designated and effective as a hedging instrument or a financial guarantee.

13 Al Fujairah National Insurance Company P.S.C. 10 for the period ended 31 March 2013 (continued) 3. Summary of significant accounting policies (continued) 3.5 Financial assets at fair value through other comprehensive income (FVTOCI) (continued) Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value with gains and losses arising from changes in fair value recognised in other comprehensive income and accumulated in the cumulative changes in fair values account. The cumulative gain or loss will not be reclassified to profit or loss on disposal of the investments. The Company has designated all investments in equity instruments that are not held for trading as at FVTOCI. Dividends on these investments in equity instruments are recognised in profit or loss when the Company s right to receive the dividends is established in accordance with IAS 18 Revenue, unless the dividends clearly represent a recovery of part of the cost of the investment. 4. Property and equipment All the properties and equipment are located in U.A.E. 5. Investment property All the investment properties are stated at fair value and are located in U.A.E. 6. Financial investments The movements in investments in securities are as follows: At fair value through other comprehensive income Three month period ended 31 March Year ended 31 December (unaudited) (audited) Fair value at the beginning of the period/ year 118,481, ,941,139 Net (decrease)/ increase in fair value (2,419,708) 11,540,694 Fair value at the end of the period/ year 116,062, ,481,833 At fair value through profit or loss Fair value at the beginning of the period/ year 1,575, ,439 Purchased during the period/ year 2,516,390 2,667,253 Disposals during the period/ year (2,391,036) (1,863,556) Net (decrease)/ increase in fair value (45,642) 21,785 Fair value at the end of the period/ year 1,655,633 1,575,921 All financial investments are held in U.A.E.

14 Al Fujairah National Insurance Company P.S.C. 11 for the period ended 31 March 2013 (continued) 7. Statutory deposit 31 March 31 December (unaudited) (audited) Statutory deposit maintained in accordance with Article 42 of U.A.E., Federal Law No. 6 of ,000,000 6,000, Insurance contract liabilities and re-insurance contract assets 31 March 31 December (unaudited) (audited) Gross Insurance contract liabilities: Claims reported unsettled 90,528,405 85,600,330 Claims incurred but not reported 7,500,000 7,000,000 Unearned premiums 74,190,038 63,925,120 Total insurance contract liabilities, gross 172,218, ,525,450 Recoverable from reinsurers Claims reported unsettled 51,601,862 49,337,959 Unearned premiums 23,027,712 15,091,434 Total reinsurers share of insurance liabilities 74,629,574 64,429,393 Net Claims reported unsettled 38,926,543 36,262,371 Claims incurred but not reported 7,500,000 7,000,000 Unearned premiums 51,162,326 48,833,686 97,588,869 92,096, Bank balances and cash 31 March 31 December (unaudited) (audited) Bank balances: Call accounts 391,051 3,125,898 Fixed deposits 48,768,898 44,230,863 Cash on hand 395, ,521 Bank balances and cash 49,555,769 47,958,282 Less: Fixed deposits under lien (2,000,000) (2,000,000) Less: Fixed deposits with maturity over 3 months (41,277,980) (41,000,000) Cash and cash equivalents 6,277,789 4,958,282 Bank balances are maintained with banks registered in United Arab Emirates. Fixed deposits amounting to 2 million (31 December 2012: 2 million) is under lien in respect of bank credit facility granted to the Company (Note 11).

15 Al Fujairah National Insurance Company P.S.C. 12 for the period ended 31 March 2013 (continued) 10. Share capital 31 March 31 December (unaudited) (audited) Issued and fully paid: 1,000,000 ordinary shares (2012: 1,000,000 ordinary shares) of 100 each 100,000, ,000, Bank Borrowings 31 March 31 December (unaudited) (audited) Loans 35,858,020 37,597,033 The bank borrowings are repayable as follows: Within one year 9,843,822 9,600,000 In the second year 9,600,000 9,600,000 In the third to fifth year inclusive 16,414,198 18,397,033 35,858,020 37,597,033 Less: Amount due for settlement within 12 months from the reporting date (9,843,822) (9,600,000) Bank borrowings (due for settlement after 12 months from the reporting date) 26,014,198 27,997,033 The Company entered in to a loan agreement with a U.A.E. bank to finance the cost of construction of property. The loan will be repaid in 113 equal monthly installments of 800,000 each (inclusive of interest) until full settlement, with first installment started in May The loan is secured by mortgaging the Company s residential building and the land on which it is erected in Fujairah, mortgaging fixed deposits in favour of the granting bank, assignment of rental income from the said building and issuance of promissory notes by the Company.

16 Al Fujairah National Insurance Company P.S.C. 13 for the period ended 31 March 2013 (continued) 12. Net insurance premium revenue Three month period ended 31 March (unaudited) (unaudited) Gross premium written Gross premium written 49,805,110 55,057,834 Change in unearned premium (10,264,919) (13,739,248) 39,540,191 41,318,586 Reinsurance premium ceded Reinsurance premium ceded (18,383,498) (23,252,545) Change in unearned premium 7,936,278 12,482,863 Net insurance premium revenue (10,447,220) (10,769,682) 29,092,971 30,548, Basic earnings per share Three month period ended 31 March (unaudited) (unaudited) Profit for the period (in ) Number of shares (share) Basic earnings per share (in ) 7,634,586 8,885,816 1,000, , Basic earnings per share and weighted average number of shares for the comparative period were restated to consider the effect of the 250,000 rights shares issued during Dividends In its meeting held on 28 March 2013, the Shareholders General Assembly approved the payment of cash dividend at 7.5 % of share capital for the year 2012 (2012: Nil for 2011).

17 Al Fujairah National Insurance Company P.S.C. 14 for the period ended 31 March 2013 (continued) 15. Segment information For the three month period ended 31 March 2013 For the three month period ended 31 March 2012 Underwriting Investments Total Underwriting Investments Total (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) Segment revenue 49,805,110-49,805,110 55,057,834-55,057,834 Segment result 8,013,323 1,496,217 9,509,540 10,646,954 1,593,675 12,240,629 Unallocated costs (net) (1,874,954) (3,354,813) Profit for the period 7,634,586 8,885,816 As of 31 March 2013 As of 31 December 2012 Underwriting Investments Total Underwriting Investments Total (unaudited) (unaudited) (unaudited) (audited) (audited) (audited) Segment assets 151,328, ,654, ,983, ,883, ,456, ,339,976 Unallocated assets 786,871 3,727,419 Total assets 401,769, ,067,395 Segment liabilities 224,639,852 35,858, ,497, ,552,186 37,597, ,149,219 Unallocated liabilities 9,289,534 8,650,576 Total liabilities 269,787, ,799,795 There are no transactions between the business segments.

18 Al Fujairah National Insurance Company P.S.C. 15 for the period ended 31 March 2013 (continued) 16. Related party transactions Related parties include the Company s major shareholders, directors and businesses controlled by them and their families over which they exercise significant management influence as well as key management personnel. At the reporting date, amounts due from/to related parties included under insurance and other receivables and under insurance contract liabilities, respectively, were as follows: 31 March 31 December (unaudited) (audited) Due from related parties 5,027,456 1,004,578 Due to related parties 341, ,065 The amounts outstanding are unsecured and will be settled in cash. No guarantees have been received and no expense has been recognised in the period for bad or doubtful debts in respect of the amounts owed by related parties. Transactions: During the period, the Company entered into the following transactions with related parties: Three month period ended 31 March (unaudited) (unaudited) Gross premium 12,096,017 8,487,024 Claims paid 9,224 82,866 Premiums are charged to related parties at rates agreed with the management. Compensations of key management staff and Board of Directors Three month period ended 31 March (unaudited) (unaudited) Key management staff: Short-term benefits 1,239,666 1,274,000 Long-term benefits 411,799 69,686 Board of directors meeting allowance 337, ,000

19 Al Fujairah National Insurance Company P.S.C. 16 for the period ended 31 March 2013 (continued) 17. Seasonality of results No income of seasonal nature was recorded in the condensed statement of income for the three month period ended 31 March 2013 and Commitments and contingent liabilities 31 March 31 December (unaudited) (audited) Letters of guarantees 6,776,516 6,776,516 Capital commitments 560, ,000 In one of the legal cases filed by the Company against one of its debtors, the appointed expert s preliminary report showed that the Company has to pay the counter party 8.5 million. The Company s lawyer has filed a contra memo with the court rejecting the expert s report and refuting the basis on which it was built. The court has suspended the expert s preliminary report and appointed a committee of three experts to reaudit the case documents and report their conclusion to the court. The experts committee has concluded with majority of its members that the Company s debtor has to pay the sum of 10.1 million to the Company. The case is still under hearing as at the date of authorization of these condensed financial statements. The management of the Company is comfortable that the outcome of this court case will be favourable in light of the experts committee conclusion and the comprehensive and concrete defense documents provided to the experts committee. 19. Approval of condensed financial statements The condensed financial statements were approved and authorised for issue on 9 May 2013.