OMAN UNITED INSURANCE COMPANY SAOG FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2006

Transcription

1 OMAN NITED INSRANCE COMPANY SAOG FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2006

2 OMAN NITED INSRANCE COMPANY SAOG FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2006 Contents Page Report of the auditors 1 Income statement 2 Balance sheet 3 Statement of changes in equity 4 Cash flow statement 5 Notes to the financial statements 6-29

3 PricewaterhouseCoopers LLP P.O Box 3075, Ruwi 112 Suites Hatat House Wadi Adai, Muscat Sultanate of Oman Telephone +(968) Facsimile +(968) INDEPENDENT ADITOR S REPORT TO THE SHAREHOLDERS OF OMAN NITED INSRANCE COMPANY S.A.O.G We have audited the accompanying financial statements of Oman nited Insurance S.A.O.G (the company), which comprise the balance sheet as of 31 December 2006, and the income statement, statement of changes in equity and cash flow statement for the year then ended and a summary of significant accounting policies and other explanatory notes. Directors responsibility for the financial statements The Directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and in compliance with the disclosure requirements set out in the Rules for Disclosure and Proformas issued by the Capital Market Authority. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the company as at 31 December 2006, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards and with the Rules for Disclosure and Proformas issued by the Capital Market Authority of the Sultanate of Oman. PricewaterhouseCoopers LLP 28 February 2007 Muscat, Sultanate of Oman Chartered Accountants Licence No. MH/26 Management Consultants Licence No. MA/161 Commercial Register No. 5/30766/1

4 186,708 2,229,343 (157,273) 13,820 2,069,900 (86,779) OMAN NITED INSRANCE COMPANY SAOG 2 INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2006 Note Income Insurance premium revenue 6 19,792,947 18,350,747 Insurance premium ceded to reinsurers 6 (7,385,382) (7,068,984) Net insurance premium revenue 12,407,565 11,281,763 Profit on sale of investments 113, ,068 Fair value gains on assets at fair value through income 20 14, ,478 Impairment of available-for-sale investments 16 (706,716) (100,000) Dividend income 345, ,386 Interest income 536, ,185 Other operating income 7 Net income 12,898,563 13,279,700 Insurance claims and loss adjustment expenses 8 11,918,261 9,896,423 Insurance claims and loss adjustment expenses recovered from reinsurers 8 (3,833,442) (2,004,007) Expenses for the acquisition of insurance contracts 831, ,835 General and administration expenses 10 Expenses 11,145,823 10,768,151 Profit before taxation 1,752,740 2,511,549 Taxation 12 Profit for the year 1,595,467 2,424,770 Earnings per share The notes on pages 6 to 29 form an integral part of these financial statements. Report of the Auditors - page 1.

5 360,678 1,200,000 3,871,936 13,754 5, , , , ,094 OMAN NITED INSRANCE COMPANY SAOG BALANCE SHEET AT 31 DECEMBER Note ASSETS Non-current assets Property, furniture and equipment 14 2,048,042 4,513,576 Investment property 15 3,092,877 - Available-for-sale investments ,525 1,455,944 Held to maturity investments 17 1,450,000 1,650,000 Deposits 18 1,500,000 5,200,000 Deferred taxation 19 8,827,871 12,968,465 Current assets Financial assets at fair value through income 20 7,542,405 7,220,505 Inventories 21 27,983 40,427 Insurance and other receivables 22 3,325,333 1,733,075 Deposits 18 8,924,800 3,352,599 Reinsurance contracts 28 9,108,281 7,708,934 Held to maturity investments ,000 - Amount held by banks from rights issue 23 3,871,936 - Bank balances and cash 33,361,416 20,544,757 Total assets 42,189,287 33,513,222 EQITY AND LIABILITIES Capital and reserves Share capital 23 8,000,000 6,900,000 Retained earnings 474, ,474 Legal reserve 24 2,300,068 2,140,521 General reserve , ,000 Fair value reserve 30,494 9,314 Contingency reserve 26 1,942,742 1,580,596 Proposed stock dividend 27 64,032 1,100,000 Proposed cash dividend 27 14,111,552 13,184,905 Rights issue pending allotment 23 17,983,488 13,184,905 Non-current liabilities Insurance contracts , ,131 Employees end of service benefits , , , ,068 Current liabilities Insurance contracts 28 17,811,805 15,520,957 Trade and other payables 30 5,904,626 4,368,198 Taxation 23,730,185 20,003,249 Total liabilities 24,205,799 20,328,317 Total equity and liabilities 42,189,287 33,513,222 Net assets per share The financial statements on pages 2 to 29 were approved for issue by the Board of Directors on 24 February 2007 and were signed on their behalf by: SAYYED SALIM BIN NASSIR AL-BSAIDI CHAIRMAN SHEIKH NASSIR BIN KHAMIS AL HASHAR DIRECTOR Report of the Auditors - page 1.

6 - (690,000) - (1,200,000) , ,200, OMAN NITED INSRANCE COMPANY SAOG STATEMENT OF CHANGES IN EQITY FOR THE YEAR ENDED 31 DECEMBER 2006 Proposed stock dividend Note Share capital Retained earnings Legal Reserve General reserve Fair value reserve Contingency reserve Proposed cash dividend Total At 1 January ,000, ,555 1,898, ,000 53,590 1,265, , ,000 11,404,411 Bonus shares issued during the year 900, (900,000) - - Dividend paid (600,000) (600,000) Movement in fair value reserve (44,276) (44,276) Profit for the year - 2,424, ,424,770 Transfer to legal reserve 24 - (242,477) 242, Transfer to contingency reserve 26 - (315,374) , Proposed stock dividend 27 (1,100,000) ,100, Proposed cash dividend 27 At 31 December ,900, ,474 2,140, ,000 9,314 1,580,596 1,100, ,000 13,184,905 At 1 January ,900, ,474 2,140, ,000 9,314 1,580,596 1,100, ,000 13,184,905 Bonus shares issued during the year 1,100, (1,100,000) - - Dividend paid (690,000) (690,000) Movement in fair value reserve , ,180 Profit for the year - 1,595, ,595,467 Transfer to legal reserve 24 - (159,547) 159, Transfer to contingency reserve 26 - (362,146) , Proposed stock dividend 27 - (64,032) , Proposed cash dividend 27 At 31 December ,000, ,216 2,300, ,000 30,494 1,942,742 64,032 1,200,000 14,111,552 The notes on pages 6 to 29 form an integral part of these financial statements. Report of the Auditors Page 1. 4

7 (114,095) 489, , ,386 OMAN NITED INSRANCE COMPANY SAOG 5 CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2006 Note Operating activities Cash generated from operating activities 31 2,680,470 2,235,074 Tax paid Net cash generated from operating activities 2,566,375 2,235,074 Investing activities Purchase of property, furniture and equipment (334,943) (1,782,018) Purchase of investment property (503,551) - Proceeds from sale of property, furniture and equipment 1, Purchase of investments (1,256,013) (2,679,448) Proceeds from sale of investments 1,101,589 2,018,038 Proceeds from sale of associated company shares - 8,857 Application amount of an IPO - 495,000 Liquidation of deposits 2,416, ,750 Placement of deposits (2,882,747) (1,110,744) Interest received 515, ,218 Dividends received Net cash used in investing activities (598,606) (1,598,179) Financing activities Dividend paid (690,000) (600,000) Net change in cash and cash equivalents 1,277,769 36,895 Cash and cash equivalents at beginning of year 452,322 Cash and cash equivalents at end of year 32 1,766, ,217 The notes on pages 6 to 29 form an integral part of these financial statements. Report of the Auditors - page 1.

8 OMAN NITED INSRANCE COMPANY SAOG 6 FOR THE YEAR ENDED 31 DECEMBER Legal status Oman nited Insurance Company SAOG the company is incorporated as a public listed joint stock company in the Sultanate of Oman. The principal office of the company is located at OIC Building, Al Khuwair Street, Al Khuwair in the Sultanate of Oman. The company is engaged in underwriting of general and life and medical insurance business and in repair and maintenance of motor vehicles within the Sultanate of Oman. 2 Summary of significant accounting policies The principal accounting policies are summarised below. These policies have been consistently applied to each of the years presented, unless otherwise stated. 2.1 Basis of preparation (a) The financial statements are prepared on the historical cost basis, as modified by the revaluation of available-for-sale financial assets and financial assets at fair value through income, and in accordance with International Financial Reporting Standards (IFRS). They also comply with the disclosure requirements set out in the Rules for Disclosure and Proformas issued by the Capital Market Authority of the Sultanate of Oman. (b) The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the company s accounting policies. The areas involving higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3. (c) The company will apply IFRS 7, Financial Instruments: Disclosures, and a complementary amendment to IAS 1, Presentation of Financial Statements - Capital Disclosures from their effective date of 1 January IFRS 7 introduces new disclosures to improve the information about financial instruments and will require the company to disclose additional qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures and risk management policies including sensitivity analysis to market risk. 2.2 Segment reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and rewards that are different from those of other segments operating in other economic environments. 2.3 Foreign currency transactions Items included in the financial statements of the company are measured and presented in Rials Omani being the currency of the primary economic environment in which the company operates. Foreign currency transactions are translated into Rials Omani at the exchange rate prevailing on the transaction date. Foreign currency assets and liabilities are translated into Rials Omani at the exchange rate prevailing at the balance sheet date. Differences on exchange are dealt with in the income statement as they arise. 2.4 Insurance and investment contracts - classification The company issues contracts that transfer insurance risk. Long term insurance contracts issued by the company do not contain any discretionary participation features which will entitle the contract holder to receive additional benefits or bonuses.

9 OMAN NITED INSRANCE COMPANY SAOG Insurance and investment contracts classification (continued) Insurance contracts (a) Recognition and measurement Insurance contracts are classified into two main categories, short term and long term insurance contracts. Short term insurance contracts Short term insurance contracts are principally divided into Motor and Non-motor general insurance and short duration life insurance by the company. Motor insurance in the Sultanate is governed by law and it is compulsory for all vehicles to have a minimum third party cover. The company also issues comprehensive motor policies. Such motor policies issued by the company cover damages to vehicle due to storm, tempest, flood, fire, theft and personal accident. Specific motor policies are also issued to include coverage outside the Sultanate. The non-motor insurance category comprises Fire, Marine, Engineering, Workman Compensation and Aviation cover. Short duration life insurance contracts protect the company s customers from the consequences of events such as death or disability that would affect the ability of the customer or his/her dependants 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 policyholder. There are no maturity or surrender benefits. For all these contracts, premiums are recognized 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 balance sheet date is reported as the unearned premium liability. Premiums are shown before deduction of commission. Claim and loss adjustment expenses are charged to income 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 balance sheet date even if they have not yet been reported to the company. The company does not discount its liabilities for unpaid claims. Liabilities for unpaid claims are estimated using the input of assessments for individual cases reported to the company and statistical analyses 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. Long term insurance contracts with fixed and guaranteed terms These contracts insure events associated with human life (for example death, or disability) over a long duration. Premiums are recognized as revenue when they become payable by the contract holder. Premiums are shown before deduction of commission. Liabilities for contractual benefits that are expected to be incurred in the future are recorded when the premiums are recognized based on actuarial valuation. The liabilities are recalculated at each balance sheet date using the assumptions established at inception based on the actuarial valuation. Benefits payable to contract holders are recorded as an expense when they are incurred. (b) Policy acquisition costs All commissions and other acquisition costs related to securing new contracts and renewing existing contracts are recognized as expenses when incurred.

10 OMAN NITED INSRANCE COMPANY SAOG Insurance and investment contracts classification (continued) (c) Liability adequacy test All outstanding claims including claims incurred but not reported (IBNR) are treated as current and expected to be settled within twelve months from the balance sheet date. The amount outstanding for each claim is reviewed on a regular basis and at least quarterly and the amount adjusted in the income statement whenever considered necessary. In the case of other short term insurance policies, a provision is also calculated for the unexpired risk reserve (RR) in accordance with the Insurance Companies Law of Oman (as amended) at 45% of the net retained premiums for the year for all classes of insurance business. Added to this provision is an amount (mathematical reserve) determined by an independent actuary on an annual basis reflecting the unexpired risk for life business underwritten. A contingency reserve is also established in accordance with the Insurance Companies Law of Oman. (d) 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. Insurance contracts entered into by the company under which the contract holder is another insurer (inwards reinsurance) are included within insurance contracts. The benefits to which the company is entitled under its reinsurance contracts held are recognized as reinsurance assets. These assets consist of short-term balances due from reinsurers (classified within Insurance and other receivables), as well as the reinsurance portion of gross claims outstanding including IBNR and unexpired risk reserve 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 recognized as an expense when due, net of commission income which represents income earned from reinsurance companies. The company assesses its reinsurance assets for impairment on a quarterly basis. If there is objective evidence that the reinsurance asset is impaired, the company reduces the carrying amount of the reinsurance asset to its recoverable amount and recognizes that impairment loss in the income statement. The company gathers the objective evidence that a reinsurance asset is impaired using the same process adopted for insurance and other receivables. The impairment loss is also calculated following the same method used for these financial assets. These processes are described in Note (e) Salvage and subrogation reimbursements Some insurance contracts permit the company to sell a (usually damaged) vehicle or a property acquired in settling a claim (i.e. salvage). The company may also have the right to pursue third parties for payment of some or all costs (i.e. subrogation). Estimates of salvage recoveries are included as an allowance in the measurement of the insurance liability for claims, and salvaged vehicles or property acquired are recognized in other assets when the liability is settled. The allowance is the amount that can reasonably be recovered from the disposal of the vehicle or property. Subrogation reimbursements are also considered as an allowance in the measurement of the insurance liability for claims and are recognized in other assets when the liability is settled. The allowance is the assessment of the amount that can reasonably be recovered from the action against the liable third party. 2.5 Dividend income Dividend income from investments is recognized when the right to receive payment is established.

11 OMAN NITED INSRANCE COMPANY SAOG Interest income and expense Interest income and expense are recognised on a time proportion basis using the effective interest rate method. 2.7 Other operating income Other operating income largely comprises garage sales, reflecting the fair value of related services provided during the year. Revenue is recognized in the accounting period in which the garage services are rendered. 2.8 Dividend distribution Dividend distribution to the company s shareholders is recognized as a liability in the company s financial statements only in the period in which the dividends are approved by the company s shareholders. 2.9 Property, furniture and equipment Property, furniture and equipment are stated at cost less accumulated depreciation and impairment losses. Expenditure incurred to replace a component of an item of property and equipment that is accounted for separately, including major inspection and overhaul expenditure, is capitalised. Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the item of property, plant and equipment and can be measured reliably. All other expenditure is recognised in the income statement as an expense as incurred. The cost of the property, furniture and equipment is written down to residual value in equal instalments over the estimated useful lives of the assets. The estimated useful lives are: Buildings on freehold land Leasehold improvements Plant and equipment Furniture and fixtures Office equipment Vehicles years 5 years years 5 10 years 5 years 5 years Freehold land is not depreciated as it is deemed to have an indefinite life. Capital work-in-progress is not depreciated until it is transferred into one of the above categories at the time when it is brought into use. The assets residual values and useful lives are reviewed and adjusted, if appropriate, at each balance sheet date. Where the carrying amount of an asset is greater than its estimated recoverable amount it is written down immediately to its recoverable amount. Gains and losses on disposals of fixed assets are determined by reference to their carrying amounts and are taken into account in determining results from operations Investment property Property, principally comprising land and buildings, held for long-term rental yields and not completely occupied by the company has been classified as investment property. Investment property is accounted for under the cost model and is accordingly stated at cost less accumulated depreciation. The cost of investment property is its purchase price together with any incidental expenses. The cost of investment property is written down to residual value in equal instalments over the estimated useful lives of the assets.

12 OMAN NITED INSRANCE COMPANY SAOG Investment property (continued) The estimated useful lives of the categories within investment property are as follows Building Plant and equipment Furniture and fixtures 40 years 15 to 25 years 5 to 10 years Land is not depreciated as it is deemed to have an indefinite life. Where the carrying amount of an investment property is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Rental income on investment property and repairs and maintenance expenses relating to the investment property are recognised in the income statement Investments Financial assets at fair value through income A financial asset is held in this category if acquired principally for the purpose of short-term profit taking or if so designated by management. Financial assets at fair value through profit or loss principally comprise marketable securities. The fair values of quoted investments in active markets are based on current bid prices. Gains and losses arising from changes in the fair value of the financial assets at fair value through income category are included in the income statement in the period in which they arise. Available-for-sale investments Investments intended to be held for an indefinite period of time, but which may be sold in response to needs for liquidity or changes in equity prices, are classified as available-for-sale investments. Available-for-sale investments, principally comprising foreign unquoted securities, are fair valued at the end of each quarter including 31 December. Fair value is estimated by reference to the current market value of similar instruments or by reference to the discounted cash flows of the underlying net assets based on information received from the investment managers. nrealised gains and losses arising from changes in the fair value of available-for-sale investments are recognised in the fair value reserve. When the investment is disposed of, or when the carrying amount of the investment is impaired, the cumulative gain or loss recognised in equity is transferred to the income statement. Held-to-maturity Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the company s management has the positive intent and ability to hold to maturity. Held-to-maturity investments are initially recognized at cost and subsequently re-measured at amortized cost using the effective yield method less any provision for impairment. Interest receivable from held to maturity is accounted for on the accruals basis Inventories Inventories are stated at the lower of cost and net realisable value. The cost of inventories is determined on the first-in-first-out basis and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. Work in progress comprises materials, direct labour and direct costs and allocation of indirect costs on the basis of actual labour hours. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

13 OMAN NITED INSRANCE COMPANY SAOG Insurance and other receivables Insurance and other receivables are stated at their cost less impairment losses. A provision for impairment of receivables is established when there is objective evidence that the company will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the receivable is impaired. The amount of the provision is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the income statement within General and administration expenses Cash and cash equivalents For the purpose of the cash flow statement, deposits with a maturity of less than three months from the date of placement and all cash and bank balances are considered to be cash equivalents End of service benefits End of service benefits are accrued in accordance with the terms of employment of the company employees at the balance sheet date, having regard to the requirements of the Oman Labour Law 2003 as amended. Employee entitlements to annual leave are recognised when they accrue to employees and an accrual is made for the estimated liability for annual leave as a result of services up to the balance sheet date. The accrual relating to annual leave and leave passage is disclosed as a current liability, while that relating to end of service benefits is disclosed as a non-current liability. Contributions to a defined contribution retirement plan for Omani employees in accordance with the Omani Social Insurance Scheme, are recognised as an expense in the income statement as incurred Trade and other payables Liabilities are recognised for amounts to be paid for goods and services received, whether or not billed to the company Income tax Income tax on the profit or loss for the year comprises current and deferred tax. Current tax is recognised in the income statement and is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustments to tax payable in respect of previous years. Deferred tax is calculated using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Temporary differences relating to the initial recognition of assets or liabilities that affect neither accounting nor taxable profit are not provided for. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised and is subsequently reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred income tax assets and liabilities are offset as there is a legally enforceable right to do so in Oman Computation of Directors remuneration The basis of computation of Directors Remuneration for the year is as per the Article 101 (as amended by the Royal Decree 99/2005) of the Commercial Companies Law.

14 OMAN NITED INSRANCE COMPANY SAOG 12 3 Critical accounting estimates, and judgments in applying accounting policies The company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. Estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed in the following paragraphs. 3.1 The liability arising from claims made under insurance contracts The purpose of insurance contracts entered into by the company is to pay claims arising out of fortuitous events i.e. events that are unexpected. The company has a concentration in Motor policies issued and claims under such policies may include amounts for third party bodily injury. The company believes that the liability arising out of such third party bodily injury claims as handed down by the various courts in Oman, does not reflect a consistent approach in legal verdicts. Nevertheless, even though these awards are relatively small, the company monitors the development of such compensation claims carefully year on year and makes adequate provision for these insurance liabilities. This has resulted in the income statement being stable as these types of claims have no material effect thereon in any particular year. In the case of non-motor general insurance policies issued, although considering that the Sultanate of Oman is relatively free of major catastrophe events such as earthquakes, the risk through major storm, tempest and flood scenarios does exist. The company s portfolio is sufficiently diversified in terms of the regional distribution of risks within Oman. The loss estimation where such events do occur is usually based on external independent surveyors reports obtained progressively. As the non-motor general insurance is predominantly ceded out and the risk retention is very low the impact of any deviation in estimation in the income statement is considered to be immaterial. In the case of life insurance claims, statistical information about the patterns of events allows actuaries to calculate probabilities of an event occurring and the severity of such events. nderwriters are therefore able to apply rates, terms and conditions to each individual risk accepted based on those predications. In conjunction with those prevailing conditions, the company arranges protection for its ultimate liability on any one contract of insurance by way of either Treaty or Facultative Reinsurance. 3.2 Impairment of available-for-sale investments The company has investments in foreign unquoted equity investments where investment managers do not provide fair value information on such investments on a regular basis. Where there has been a significant or prolonged period where no fair valuation is carried out by the investment managers, estimation is made by management as to impairment losses by comparing the actual performance and key financial ratios with the projected performance. 4 Insurance and financial risk management 4.1 Insurance risk The risk under any 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 may exceed the carrying amount of the insurance liabilities. This could occur because of 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.

15 OMAN NITED INSRANCE COMPANY SAOG 13 4 Insurance and financial risk management (continued) 4.1 Insurance risk (continued) The company s objectives in managing risks are: to take a conservative approach to underwriting, which means review of all aspects about a risk prior to acceptance; retaining experienced and knowledgeable underwriters; and having underwriting authorities in place which are checked by Internal Audits. The company ensures that risks are mitigated with first class reinsurance security, pre-underwriting surveys and claims history reviews. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed in note 3. The company only accepts insurance risk within the Sultanate of Oman. The company s net account in terms of aggregate risk retention is well protected with substantial event limits plus catastrophe excess of loss reinsurance per class of business written. 4.2 Financial risk factors The company s activities expose it to a variety of financial risks: market risk (including currency and price risk), reinsurance risk, credit risk, liquidity risk and interest rate risk. The company s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the company. Risk management is carried out by the management under policies approved by the Board of Directors. (a) Market risk (i) Foreign currency risk The company is exposed to foreign exchange risk arising from various currency exposures primarily with respect to investments in foreign equities which are denominated in Pounds Sterling, S Dollars and Euros. The company manages the risks through regular monitoring of the equity and currency markets to determine appropriate action to minimise the foreign exchange risk exposure. (ii) Price risk Price risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices, whether these changes are caused by factors specific to the individual security, or its issuer, or factors affecting all securities in the market. The company is exposed to market risk with respect to its investments. The company limits market risk by maintaining a diversified portfolio and by regular monitoring of the market. In addition the company actively monitors the key factors that effect stock market movements. (b) Reinsurance risk Reinsurance risk refers to the risk an enterprise will encounter in the event that any reinsurer fails to meet its obligations assumed under the reinsurance agreement. The company is supported by reinsurers who are selected based on the recommendations of professional reinsurance brokers and the evaluation of available information on the financial strengths of the reinsurers. The assessment and selection of reinsurers is carried out annually. The company is not exposed to any material concentration of reinsurance risk. (c) Credit risk The company has no significant concentration of credit risk at the balance sheet date as its customers are well diversified within the Sultanate. Credit risk on receivables is limited to their carrying values as management regularly reviews these balances to assess recoverability and makes provision for balances whose recoverability is in doubt.

16 , ,998 OMAN NITED INSRANCE COMPANY SAOG Financial risk factors (continued) (d) Liquidity risk Liquidity risk is the risk that an enterprise will encounter difficulty in raising funds to meet commitments associated with financial liabilities. Liquidity requirements are monitored regularly and directors ensures that sufficient funds are available to meet any commitments as they arise. (e) Interest rate risk The company invests in securities and has deposits that are subject to interest rate risk. Interest rate risk to the company is the risk of changes in market interest rates reducing the overall return on its interest bearing securities. The company has facilities in place at interest rates on commercial terms and limits interest rate risk by monitoring changes in interest rates. 4.3 Fair value estimation The fair values of held to maturity investments approximate to their carrying values. The fair values of quoted investments are based on market bid prices at the balance sheet date and those for unquoted investments are based on the fair values advised by the investment brokers. The face values less any estimated credit adjustments for financial assets and liabilities with a maturity of less than one year are assumed to approximate to their fair values. 5 Segment information (a) Class of business The company is involved in the businesses of general insurance, life and medical insurance and auto services within the Sultanate of Oman. Auto service is availed for the company s insured vehicles under claims and hence treated as a support service for the motor insurance portfolio included as part of general insurance and not reported as a separate segment 2006 General insurance Life and medical insurance Common Total Insurance premium revenue 17,468,810 2,324,137-19,792,947 Insurance premium ceded to reinsurers (net of commission) (6,095,214) (1,290,168) - (7,385,382) Net insurance premium revenue 11,373,596 1,033,969-12,407,565 Investment and other income Net income 11,373,596 1,033, ,998 12,898,563 Insurance claims and loss adjustment expenses (10,929,867) (988,394) - (11,918,261) Insurance claims and loss adjustment expenses recovered from reinsurers 3,220, ,445-3,833,442 Expenses for the acquisition of insurance contracts (719,470) (112,191) - (831,661) General and administration expenses (1,859,872) (122,077) (247,394) (2,229,343) Profit before taxation 1,085, , ,604 1,752,740 Segment assets 22,079,843 2,276,866 17,832,578 42,189,287 Segment liabilities 21,854,076 2,118, ,111 24,205,799 Capital expenditure 320,312 14, , ,494 Depreciation 143,392 1,792 64, ,178

17 - - 1,997,937 (1,086,555) 498,146 - (7,068,984) (320,986) 1,997, ,722 (458,549) OMAN NITED INSRANCE COMPANY SAOG 15 5 Segment information (continued) (a) Class of business (continued) 2005 General Insurance Life and medical Insurance Common Total Insurance premium revenue 16,899,796 1,450,951-18,350,747 Insurance premium ceded to reinsurers (net of commission) (6,253,354) (815,630) Net insurance premium revenue 10,646, ,321-11,281,763 Investment and other income Net income 10,646, ,321 1,997,937 13,279,700 Insurance claims and loss adjustment expenses (8,974,241) (922,182) - (9,896,423) Insurance claims and loss adjustment expenses recovered from reinsurers 1,392, ,976-2,004,007 Expenses for the acquisition of insurance contracts (706,889) (98,946) - (805,835) General and administration expenses (1,604,419) (144,495) (2,069,900) Profit before taxation 752,924 81,674 1,676,951 2,511,549 Segment assets 23,180,644 1,507,184 8,825,394 33,513,222 Segment liabilities 18,726,255 1,428, ,840 20,328,317 Capital expenditure 1,780,437 1,581-1,782,018 Depreciation 165,930 7, ,344 (b) Geographical segment All the company s activities are within the Sultanate of Oman. 6 Insurance premium revenue Gross premium revenue arising from insurance contracts issued Long term insurance contracts 1,105, ,910 Short-term insurance contracts 19,774,048 17,866,115 Change in unexpired risk reserve 19,792,947 18,350,747 Premium revenue ceded to reinsurers on insurance contracts issued Long term insurance contracts with fixed and guaranteed terms (563,176) (87,709) Short-term insurance contracts (7,320,352) (6,522,726) Change in unexpired risk reserve (7,385,382) (7,068,984) Net insurance premium revenue 12,407,565 11,281,763

18 74,023 (40,971) 33,052 49,608 18, ,813 (489,525) 49,493 (8,255) 631,228 (7,068,984) (455,534) (805,835) 9,745 OMAN NITED INSRANCE COMPANY SAOG 16 7 Other operating income Rental income from investment property 137,215 - Other income 13, ,708 13,820 8 Insurance claims and loss adjustment expenses Gross Net Gross Reinsuranc e Reinsurance Claims and loss adjustment expenses paid 10,579,931 (2,932,241) 7,647,690 9,645,112 (2,135,367) 7,509,745 Increase/(decrease) in outstanding claims (Note 28) 1,264,307 (860,230) 404, , , ,926 Increase/(decrease) in IBNR Total insurance claims and loss adjustment expenses 11,918,261 (3,833,442) 8,084,819 9,896,423 (2,004,007) 7,892,416 Net 9 nderwriting result Insurance premium revenue 19,792,947 18,350,747 Insurance premium ceded to reinsurers (7,385,382) Net insurance premium revenue 12,407,565 11,281,763 Net claims incurred (7,388,511) (7,210,044) Garage expenses: - Depreciation (41,398) (76,668) - Staff costs (165,385) (150,170) - Cost of spare parts, consumables and others Total claim and loss adjustment expenses (8,084,819) (7,892,416) Expenses for the acquisition of insurance contracts (831,661) nderwriting result 3,491,085 2,583,512 (a) The underwriting results before reinsurance recoveries can be analysed as follows: nderwriting result before reinsurance recoveries Net retained premium General Insurance Motor 788,552 1,498,561 10,135,326 9,309,101 Fire (2,324,678) (121,303) 43,841 50,572 Marine 106,925 (32,123) 84,925 74,094 Household and other 1,153,465 (379,825) Total (275,736) 965,310 11,051,905 10,064,995 Life Insurance Individual life 27,632 13,334 49,026 15,961 Group life (446,958) (448,750) 202, ,443 Group credit and others 352, , ,187 Total (66,618) (385,808) 626, ,591

19 31,742 44,884-11,919-23,228 31,209 36,940 OMAN NITED INSRANCE COMPANY SAOG 17 9 nderwriting result (continued) (b) The net claims ratios under general insurance are analysed as follows: % % Motor Fire Marine Household and other Overall loss ratio General and administration expenses Salaries and employee related costs 1,441,340 1,416,416 Office related expenses 268, ,822 Depreciation 116,785 96,676 Rent 92, ,770 Repairs and maintenance 70,880 41,295 Depreciation on investment property 51,995 - Business promotion 59,099 55,466 Twentieth anniversary expenses 40,669 - Proposed directors remuneration and sittings fees paid 35,450 80,246 Provision against doubtful receivables and advances 20,000 20,000 Miscellaneous 2,229,343 2,069, Staff costs Salaries and employee related costs included in underwriting results and general and administration expenses are as follows: Salaries and allowances 1,523,245 1,476,733 End of service benefits 38,596 52,913 Social security costs 1,606,725 1,566, Taxation (a) The taxation (charge)/credit for the year comprises: Current taxation: In respect of current year (13,755) - In respect of previous year (13,755) 11,919 Deferred taxation: Current year (143,518) (121,926) Previous year (143,518) (98,698) Net charge to the income statement (157,273) (86,779)

20 619, (3,600) OMAN NITED INSRANCE COMPANY SAOG Taxation (continued) (b) The reconciliation of tax on the accounting profit with the current year taxation charge in the financial statements at the applicable rate of 12% after basic exemption of 30,000 is as follows: Taxation charge on accounting profit of 1,752,739 (2005-2,511,549) (206,729) (297,786) Tax effect of: Income not taxable 51, ,660 Expenses not allowed (2,359) (7,200) Basic rate adjustment Current year taxation charge in income statement (157,273) (121,926) (c) Taxation has been agreed with the taxation authorities for all periods up to 31 December Earnings per share The earnings per share has been derived by dividing the profit for the year attributable to shareholders by the weighted average number of shares outstanding. As there are no dilutive potential shares, the diluted earnings per share is identical to the basic earnings per share. Profit for the year () 1,595,467 2,424,770 Average number of shares outstanding during the year 80,000,000 80,000,000 Earnings per share () Property, furniture and equipment (a) Details of movements in property, furniture and equipment are set out on pages 28 and 29. (b) Land and buildings with a carrying value of 848,831 ( ,587) have been mortgaged to a commercial bank for the bank facilities provided. 15 Investment property Cost Transfer from capital work in progress 2,525,262 - Transfer of land from fixed assets At 31 December 3,144,872 Depreciation Charge for the year 51,995 At 31 December 51,995 Net book value at 31 December 3,092,877 - (a) The fair value of investment property at 31 December 2006 is estimated at 4,280,000 based on an open market value assessed by an independent professionally qualified valuer on 11 January (b) There is a rental income arising from the building owned by the company, which amounted to 137,215, included in other income. In the income statement, general and administrative expenses, including depreciation, of 76,477 relate to investment property.

21 - 50,000 (38,883) 61,985-50,000 (169,741) 61,985 OMAN NITED INSRANCE COMPANY SAOG Available-for-sale investments (a) The movements in the year are analysed as below: At 1 January 1,455,944 1,692,573 Purchases - 77,388 Net fair value gains/(losses) 21,180 (44,276) Impairment loss (706,716) (100,000) Disposals At 31 December 731,525 1,455,944 (b) Available-for-sale investments can be analysed as follows: Fair value Cost Fair value Cost Overseas unquoted 731, ,477 1,455,944 1,556,644 Local unquoted 731, ,477 1,455,944 1,606,644 (c) Details of the company s available-for-sale investments for which the company s holding exceeds 10% of the fair value of the investment portfolio are: Overseas unquoted securities Holding Number of Securities Fair Value Book value Cost % 31 December 2006 Horborside, SA 28% 4 units 202, , ,926 Avecia 15% 1 unit 112, ,170 92,265 Techno Fund 15% 3 units 111, , ,258 Wellcome Break 10% 1 unit 74,780 74,780 72, December 2005 Polestar, Europe 40% 10 units 580, , ,880 Horborside, SA 14% 4 units 202, , ,926 (d) The geographical distribution of investments is as follows: nited States of America 457, ,309 Europe 211, ,650 GCC Countries Total 731,525 1,455, Held to maturity investments (a) Held to maturity investments comprise Oman Government Development Bonds which carry interest at a rate of 4.5% ( %) per annum and mature in 2007 and (b) In accordance with the law governing the operations of insurance companies within the Sultanate of Oman, the company has identified to the Capital Market Authority (Insurance division) Government Development Bonds included in the balance sheet at a total value of 1,650,000 (2005-1,650,000). nder the terms of the legislation, the company can only utilise these assets with the prior approval of the Capital Market Authority (Insurance division).

22 12,103 10,615 1,500,000 ( (948,930) 1,488 12,103 OMAN NITED INSRANCE COMPANY SAOG Deposits (a) Deposits are placed with commercial banks in the Sultanate of Oman, carry interest rates of between 3.75% to 5% ( % to 5%) per annum. Amounts of 9,159,298 (2005-7,225,176) are denominated in Rial Omani and deposits equivalent to 1,265,502 (2005-1,150,595) in S dollars. (b) In accordance with the law governing the operations of insurance companies within the Sultanate of Oman, the company has identified to the Capital Market Authority (Insurance division) certain specific bank deposits included in the balance sheet at a total value of 8,122,683 (2005-7,841,558). nder the terms of the legislation, the company can only utilise these assets with the prior approval of the Capital Market Authority (Insurance division). (c) The maturity profile of the deposits is as follows: Within one year included in current assets 8,924,800 3,352,599 Between two to three years 5,200,000 10,424,800 8,552, Deferred taxation Deferred income taxes are calculated on all temporary differences under the liability method using a principal tax rate of 12% ( %). Deferred tax assets in the balance sheet and deferred tax (charge)/credit in the income statement are as follows: 1 January 2006 (Charged)/ credited to income statement 31 December 2006 Deferred income tax assets Losses carried forward 136,842 (136,842) - Accelerated tax depreciation 6,676) 5, ,945 (143,518) 5,427 1 January 2005 (Charged)/ credited to income statement 31 December 2005 Deferred income tax assets Losses carried forward 237,028 (100,186) 136,842 Accelerated tax depreciation 20 Financial assets at fair value through income 247,643 (98,698) 148,945 (a) The movements in the year are analysed as below: At 1 January 7,220,505 5,153,050 Purchases 1,256,013 2,602,062 Net fair value gains 14, ,478 Disposals (1,374,085) At 31 December 7,542,405 7,220,505