AL KHALEEJ TAKAFUL GROUP Q.S.C. DOHA QATAR

Transcription

1 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2015 TOGETHER WITH IN DEPE NDEN T AUDIT OR S RE P ORT

2 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2015 TABLE OF CONTENT Independent Auditor s Report -- Page Consolidated Statement of Profit or Loss (policyholders ) 3 Consolidated Statement of Profit or Loss (shareholders ) 4 Consolidated Statement of Profit or Loss and Other Comprehensive Income Items 5 Consolidated Statement of Financial Position 6 7 Consolidated Statement of Cash Flows 8 Consolidated Statement of Changes in Equity 9-10 Consolidated Statement of Changes in Participants Fund 11 Notes to the Consolidated Financial Statements 12-50

3 IN DEPE NDEN T AUDIT OR S RE P ORT TO THE SHAREHOLDERS AL KHALEEJ TAKAFUL GROUP Q.S.C. We have audited the accompanying consolidated financial statements of Al Khaleej Takaful Group Q.S.C. (the Company ) and its subsidiaries (together referred to as the Group ) which comprise the consolidated statement of financial position as at December 31, 2015 and the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity, consolidated statement of changes in Participants fund and the consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. These consolidated financial statements and the Group s undertaking to operate in accordance with Islamic Shari a Rules and Principles are the responsibility of the Group s Board of Directors. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. Basis of opinion We conducted our audit in accordance with Auditing Standards for Islamic Financial Institutions issued by the Accounting and Auditing Organization for Islamic Financial Institutions ( AAOIFI ). Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2015 and the results of its operations, its cash flows, changes in participants fund and changes in equity for the year then ended in accordance with the Financial Accounting Standards issued by AAOIFI.

4 IN DEPE NDEN T AUDIT ORS RE P ORT (C on tin ued ) Report on legal and other regulatory requirements Furthermore, in our opinion, proper financial records have been kept by the Company and the contents of the Board of Directors annual report which relate to the consolidated financial statements are in agreement with the Group s financial records, and the financial statements comply with the Qatar Commercial Companies' Law No. 11 of 2015 and the Company s Articles of Association. We have obtained all the information and explanations we required for the purpose of our audit and are not aware of any violations of the above-mentioned law or the Articles of Association having occurred during the year which might have had a material effect on the business of the Group or on its financial position. Rödl & Partner Middle East Certified Public Accountants Hikmat Mukhaimer, FCCA UK Doha Qatar (License No. 297) February 59, 615:

5 Al-KHALEEJ TAKAFUL GROUP Q.S.C. DOHA-QATAR CONSOLIDATED STATEMENT OF PROFIT OR LOSS (POLICYHOLDERS ) FOR THE YEAR ENDED DECEMBER 31, 2015 CONTRIBUTIONS AND POLICYHOLDERS REVENUES AND EXPENSES December 31, Notes Gross contributions ,069, ,978,395 Re-takaful share 32 (201,849,467) (191,156,481) Retained contributions ,219, ,821,914 Movement in unearned contributions 32 (257,173) (3,110,914) Net retained contributions ,962, ,711,000 Re-takaful commission and other takaful income 32 33,715,364 31,486,364 Net contribution Revenues 164,677, ,197,364 Claims paid 4 (156,124,629) (143,860,924) Re-takaful share of claims paid 4 77,253,085 56,016,202 Net claims paid 4 (78,871,544) (87,844,722) Movement in outstanding claims 4 (2,508,407) 2,922,653 Movement in Technical Reserves 32 (401,393) 2,173,358 Commission and other takaful expenses 32 (28,587,224) (28,832,835) Net Takaful Expenses (110,368,568) (111,581,546) SURPLUS FROM TAKAFUL OPERATIONS 32 54,309,208 40,615,818 Investment income of takaful policyholders 2,351,359 8,423,379 Income From Deposits 124,127 68,643 Total Surplus 56,785,288 49,107,840 OTHER EXPENSES Wakala fees (37,976,732) (39,154,439) Finance cost -- (1,563,082) Mudarba profits (940,543) (3,369,352) Other Expenses (1,071,322) -- Depreciation 15&16 (1,361,237) (456,595) (41,349,834) (44,543,468) SURPLUS / DEFICIT FOR THE YEAR TRANSFERRED TO PARTICIPANTS FUND 15,435,454 4,564,372 The attached notes 1 to 34 form part of these consolidated financial statements. Page 1

6 Al-KHALEEJ TAKAFUL GROUP Q.S.C. DOHA-QATAR CONSOLIDATED STATEMENT OF PROFIT OR LOSS (SHAREHOLDERS ) FOR THE YEAR ENDED DECEMBER 31, 2015 (Continued) December 31, Notes SHAREHOLDERS REVENUES AND EXPENSES Gross contributions Retakaful share Retained contributions Movement in unearned contributions Net retained contributions 32 - Retakaful net commission and other takaful income (237,862) Total Takaful Revenues / Expenses -- (237,862) Claims paid 4 (2,226,059) (1,459,913) Retakaful share of claims paid 4 2,082,098 1,246,234 Net claims paid 4 (143,961) (213,679) Movement in outstanding claims 4 136,408 1,631,990 Total Takaful Expenses (7,553) 1,418,311 SURPLUS (DEFICIT) FROM TAKAFUL OPERATIONS 32 (7,553) 1,180,449 Wakala income 37,976,732 39,154,439 Net realized gains on sale of investment securities 5 11,900,928 28,387,404 Dividend income 26,290,933 24,357,882 Rental income 6,562,675 9,378,313 Mudarib profit 940,543 3,369,352 Gain on disposal of investment properties 2,268,674 1,760,676 Income from deposits 18,960 34,906 Gain on disposal of property and equipment 43,268 37,697 Other income 1,465,989 8,708,291 TOTAL INVESTMENT AND OTHER INCOME 87,468, ,188,960 General and administrative expenses (35,629,341) (38,327,844) Finance cost (4,973,269) (1,497,540) Depreciation 15&16 (3,469,763) (2,137,894) TOTAL EXPENSES (44,072,373) (41,963,248) SHAREHOLDERS PROFIT FOR THE YEAR 43,388,776 74,406,161 Basic/Diluted Earnings Per Share The attached notes 1 to 34 form part of these consolidated financial statements. Page 2

7 Al-KHALEEJ TAKAFUL GROUP Q.S.C. DOHA-QATAR CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR DECEMBER 31, 2015 December 31, Profit for the year 43,388,776 74,406,161 Other comprehensive income/(loss) Net realized gains on sale of investment securities classified as fair value through equity -- (6,143,284) Net change in fair value of investment securities classified as fair value through equity (95,068,871) 5,085,009 Other comprehensive income/(loss) (95,068,871) (1,058,275) TOTAL COMPREHENSIVE INCOME FOR THE YEAR (51,680,095) 73,347,886 The attached notes 1 to 34 form part of these consolidated financial statements. Page 3

8 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS OF DECEMBER 31, 2015 December 31, Notes ASSETS Policyholders assets Bank balances and cash 7 13,758,443 5,248,995 Investment securities 9 14,528,777 15,384,040 Takaful balances receivable 12 65,970,075 57,602,971 Retakaful balances receivable 13 36,022,750 37,037,953 Retakaful share of unearned contributions 21 67,095,018 72,915,039 Retakaful share of gross outstanding claims 22 84,375,307 60,204,794 Other receivables and prepayments 14 46,822,097 33,868,825 Investment properties 15 31,658,452 49,663,817 Capital Work-In Progress (Al Wakeer Project) -- 20,188,751 Property and equipment 16 1,772,164 37,046 Total policyholders assets 362,003, ,152,231 Shareholders assets Bank balances and cash 7 63,576,232 41,676,167 Time deposits 7 100, ,000 Investment securities 9 320,454, ,543,690 Asset held for sale 9 21,454,007 21,454,007 Takaful balances receivable Retakaful balances receivable 13 3,562,914 3,581,135 Retakaful share of gross outstanding claims 22 1,778,834 2,498,061 Other receivables and prepayments 14 8,212,079 18,294,698 Investment properties ,800, ,283,555 Property and equipment 16 14,322,753 14,859,395 Property under development 17 47,476, ,700 Total shareholders assets 706,738, ,464,408 TOTAL ASSETS 1,068,741,792 1,087,616,639 The attached notes 1 to 34 form part of these consolidated financial statements. Page 4

9 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS OF DECEMBER 31, 2015(Continued) December 31, Notes SHAREHOLDERS EQUITY, PARTICIPANTS FUND AND LIABILITIES Shareholders equity Share capital ,279, ,981,760 Legal reserve ,602, ,422,376 General reserve 75,477 48,971 Proposed cash dividends 20 25,527,209 77,69;,6:8 Fair value reserve 48,110, ,179,243 Retained earnings 37,725,028 69,999,;57 Total shareholders equity 570,297, ,889,327 Shareholders liabilities Liability arising from insurance contracts: Gross outstanding claims 22 1,656,761 2,512,396 Islamic bank facilities 23 95,521,600 32,000,000 Accounts payable and other liabilities 24 31,096,405 36,537,264 Retakaful and takaful balances payable 25 1,144,049 1,144,049 Employees end of service benefits 26 7,022,764 5,381, ,784,818 75,062,685 Total shareholders liabilities 136,441,579 77,575,081 Shareholders equity and liabilities 706,738, ,464,408 Participants fund Deficit in participants fund (8,808,346) (24,243,800) Fair value reserve 5,579,844 (54,957) (3,228,502) (24,298,757) Policyholders liabilities Liabilities arising from insurance contracts: Unearned contributions ,828, ,700,363 Gross outstanding claims ,611,473 81,932,549 Claims incurred but not reported 22 3,657,440 3,267, ,097, ,900,604 Islamic bank facilities ,312,738 Accounts payable and other liabilities 24 88,105,185 89,144,384 Re-takaful and takaful balances payable 25 32,028,562 40,940,565 Employees end of service benefits ,152, ,133, ,550,384 Participants Fund and Policyholders liabilities 362,003, ,152,231 TOTAL SHAREHOLDERS EQUITY, PARTICIPANTS FUND AND LIABILITIES 1,068,741,792 1,087,6 16, Soaud Bin Abdullah Mohamad Jabor Al-Thani Jassim Ali Abdul Rahman Al Moftah Managing Director Chief Executive Officer The attached notes 1 to 34 form part of these consolidated financial statements. Page 5

10 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2014 December 31, Notes OPERATING ACTIVITIES Policyholders deficit for the year 15,435,454 4,564,372 Shareholders profit for the year 43,388,776 74,406,161 58,824,230 78,970,533 Adjustments for: Movement in unearned contributions (5,871,438) -- Depreciation 15&16 4,831,000 2,594,459 Income from deposits (18,960) (103,549) Net realised gain on sale of investment securities 5 (11,900,928) (28,387,404) Mudarib Income (940,543) (3,369,352) Dividend income (26,290,933) (24,357,882) Rental income (6,562,675) (9,378,313) Gain on disposal of property and equipment (43,268) (37,697) Gain on disposal of investment properties (3,633,623) (1,760,676) Provision for employees end of service benefits 26 2,772, ,329 Operating profit / loss before operating changes in assets and liabilities 11,165,220 15,101,448 Takaful balances receivable (8,367,104) 6,865,025 Re-takaful balances receivable 1,033,424 13,315,098 Re-takaful s share of outstanding claims (23,451,286) 21,028,488 Movement in retakaful shares of unearned contributions 5,820,021 1,893,686 Other receivable and prepayments (2,648,358) (3,868,351) Gross outstanding claims 25,823,289 (25,311,575) Claims incurred but not reported 389,147 (2,444,913) Accounts payable and other liabilities (8,975,470) (18,634,578) Re-takaful balances payable (8,912,003) (4,885,254) Employees end of service benefits paid 26 (2,283,663) 2,706,404 Net cash generated from operating activities (10,406,185) 5,765,479 INVESTING ACTIVITIES Net movement in investment securities (36,420,541) (66,693,846) Property under development (37,313,099) (15,729,251) Purchase of investment properties (17,982,928) -- Dividend received 26,290,933 32,781,261 Purchase of property and equipment 16 (4,779,085) (6,654,511) Proceeds from sale of property and equipment 78,482 37,697 Proceeds from Sale of investment Properties 95,448,703 40,650,831 Income from deposits received 18, ,549 Rental Income 6,562,675 9,378,313 Net cash generated from ( used in) investing activities 31,904,100 (6,125,957) FINANCING ACTIVITIES Net movement in Islamic bank facilities 23 42,208,862 (44,536,641) Dividends paid (33,297,264) -- Net cash from financing activities 8,911,598 (44,536,641) NET INCREASE OR DECREASE IN CASH AND CASH EQUIVALENTS 30,409,513 (44,897,119) Cash and cash equivalents at 1 January 46,925,162 91,822,281 CASH AND CASH EQUIVALENTS AT 31 DECEMBER 77,334,675 46,925,162 The attached notes 1 to 34 form part of these consolidated financial statements. Page 6

11 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2015 Share Capital Legal reserve General reserve Proposed cash dividends Fair value reserve Retained earnings Total Balance at 1 January ,981, ,422,376 48,971 33,297, ,179,243 29,959, ,889,327 Profit for the year ,388,776 43,388,776 Other comprehensive gain for the year (95,068,871) -- (95,068,871) Net income for the year (95,068,871) 43,388,776 (51,680,095) Increase in reserves from retained earnings Excess difference in capital increase transferred from legal reserve , ,506 Retention to parent company (145,932) (145,932) Transfer to legal reserve -- 2,180, (2,180,265) -- Cash Dividends paid (33,297,264) (33,297,264) Proposed cash dividends Note ,527, (25,527,902) -- Board of directors remuneration Note (1,410,000) (1,410,000) Social and sports fund appropriation (Note 27) (1,084,719) (1,084,719) Capital increase at year ,297, (33,297,264) -- Balance at 31 December ,279, ,602,641 75,477 25,527,902 48,110,372 9,702, ,297,823 The attached notes 1 to 34 form part of these consolidated financial statements. Page 7

12 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2014 (Continued) Share capital Legal reserve General reserve Proposed cash dividends Fair value reserve Retained earnings Total Balance at 1 January ,755,200 81,921,532 48, ,237, ,566, ,529,669 Profit for the year ,406,161 74,406,161 Other comprehensive loss for the year (1,058,275) -- (1,058,275) Total comprehensive (loss) income for the year (1,058,275) 74,406,161 73,347,886 Increase in reserve from retained earnings ,060, (140,060,228) -- Board of Directors remuneration Note (5,550,000) (5,550,000) Transfer to legal reserve - 7,440, (7,440,616) -- Social and sports fund appropriation (Note 27) (1,860,145) (1,860,145) Transferred from Associate company , ,926 Capital Increase 51,226, (51,226,560) - Cash dividends paid (29,817,009) (29,817,009) Proposed cash dividends (Note 20) ,297,264 - (33,297,264) -- Balance at 31 December ,981, ,422,376 48,971 33,297, ,179,243 29,959, ,889,327 The attached notes 1 to 34 form part of these consolidated financial statements. Page 8

13 CONSOLIDATED STATEMENT OF CHANGES IN PARTICIPANTS FUND FOR THE YEAR ENDED December 31, 2015 Participants Fair value Fund reserve Total Balance as at 1 January 2014 (58,625,181) 304,357 (58,320,824) Net change in fair value of investment securities classified as fair value through equity -- (359,314) (359,314) Deficit for the year 4,564, ,564,372 Differences in Wakala Fees 29,817,009 29,817,009 Balance as at 31 December 2014 Net change in fair value of investment securities classified as fair value through equity (24,243,800) (54,957) (24,298,757) Fair Value as per Owner Equity -- 5,634,801 5,634,801 Deficit/ Surplus for the year 15,435, ,435,454 Differences in Wakala Fees Balance as at 31 December 2015 (8,808,346) 5,579,844 (3,228,502) The attached notes 1 to 34 form part of these consolidated financial statements. Page 9

14 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, LEGAL STATUS AND PRINCIPAL ACTIVITIES Al Khaleej Takaful Group Q.S.C. (the Company ) is a Qatari shareholding company registered and incorporated in the State of Qatar under Emiri Decree No. 53 issued on 21 December 1978 and listed on the Qatar Exchange. The Company and its subsidiaries (together referred to as the Group ) are engaged in the business of insurance, reinsurance, life insurance and real estate investment. The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries, all which, have financial reporting years ending on 31 December. The subsidiaries are as follows: Name of Ownership Country of Principal activities subsidiary incorporation Qatar Takaful Company ( QTC ) Primarily engaged in insurance 100% 100% Qatar activities in accordance with Islamic Shari a principles on a non-usury basis in all areas of insurance. Mithaq Investments Company ( MIC ) 100% 100% Qatar Primarily engaged in real estate and financial investments. The shareholders manage the participants investment funds as a Mudarib and share in the realized gains with the policyholders with following percentages: 40% share of shareholders 60% share of policyholders In case of a net realized loss on investments in a certain year, the loss is fully borne by the policyholders as approved by the Shari a Supervisory Board. The (deficit) surplus attributable to policyholders in the participants fund represents accumulated (loss) profit on policyholders operations. Any surplus during the year is fully allocated to the policyholders. The shareholders only share through the Mudarib fee in the realized gains on investments attributable to policyholders. The consolidated financial statements of Al Khaleej Takaful Group Q.S.C. for the year ended 31 December 2015 were authorised for issue in accordance with a resolution of the directors on 15 February BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES 2.1 Basis of preparation The principal accounting policies adopted in the preparation of these Consolidated financial statements are set out below. These policies have been consistently applied to the period presented, unless otherwise stated. The financial statements have been prepared in accordance with international financial reporting standards (IFRS) issued and adopted by the international accounting standards board (IASB), interpretations issued by the international financial reporting interpretations committee (IFRIC), and applicable requirements of Qatar Commercial Companies' Law No. 5 of The financial statements are prepared under the historical cost convention unless otherwise stated. Page 10

15 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES(Continued) 2.1 Basis of preparation (Continued) The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements The consolidated financial statements have been presented in Qatar Riyals ( ) which is the functional and presentation currency of the Group. The consolidated financial statements are prepared under the historical cost convention except for investment securities classified as investments at fair value through equity that have been measured at fair value. 2.2 Basis of Consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 December Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, transactions, unrealized gains and losses resulting from intra-group transactions and dividends are eliminated in full. Losses within a subsidiary are attributed to the non-controlling interest even if that results in a deficit balance. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it: Derecognizes the assets (including goodwill) and liabilities of the subsidiary Derecognizes the carrying amount of any non-controlling interest Derecognizes the cumulative translation differences, recorded in equity Recognizes the fair value of the consideration received Recognizes the fair value of any investment retained Recognizes any surplus or deficit in profit or loss Reclassifies the parent s share of components previously recognized in other comprehensive income to profit or loss or retained earnings, as appropriate. 2.3 Changes in accounting policies and disclosures The accounting policies applied by the Group are consistent with those of the previous financial year. Page 11

16 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.4 A). New standards and amendments to the standards effective from 1 January The Company has adopted the following new standards and amendments to standards in preparation of these financial statements. IFRS 9 Financial Instruments: Reissue to incorporate a hedge accounting chapter and permit the early application of the requirements for presenting in other comprehensive income. IAS 39 Financial Instruments: Recognition and Measurement Amendments to permit an entity to elect to continue to apply the hedge accounting requirements in IAS 39 for a fair value hedge of the interest rate exposure of a portion of a portfolio of financial assets or financial liabilities when IFRS 9 is applied, and to extend the fair value option to certain contracts that meet the 'own use' scope exception. IAS 19 Employee benefits Amendments to clarify the requirements that related to how contributions from employees or third parties that are linked to service should be attributed to periods of service. Annual improvements to IFRSs Cycle and Cycle. The adaption of above standards does not result in any changes to previously reported net profit/loss or equity of the Company. However result in additional disclosure in the financial statements of the Company. Page 12

17 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2015 SIGNIFICANT ACCOUNTING POLICIES (continued) B). Standards and amendments to the standards issued but not effective. The below mentioned standards and amendments to standards are not yet effective and not expect to result in material changes to the financial statements. Original issue : Description Effective date IFRS 14 IFRS 15 Regulatory Deferral Accounts Revenue from Contracts with Customers January 1, 2016 January 1, 2018 Amendments to : IFRS 9 IFRS 10 IFRS 11 IFRS 12 Financial Instruments Finalized version, incorporating requirements for classification and measurement, impairment, general hedge accounting and derecognition. Consolidated Financial Statements Amendments regarding the sale or contribution of assets between an investor and its associate or joint venture. Amendments regarding the application of the consolidation exception. Joint Arrangements Amendments regarding the accounting for acquisitions of an interest in a joint operation Disclosure of Interests in Other Entities Amendments regarding the application of consolidation exception. January 1, 2018 January 1, 2016 January 1, 2016 January 1, 2016 IAS 1 IAS 16 Presentation of Financial Statements Amendments resulting from the disclosure initiative January 1, 2016 Property, Plant and Equipment Amendments regarding the clarification of acceptable methods of depreciation and amortization. Amendments bringing bearer plants into the scope of IAS 16 January 1, 2016 IAS 27 Separate Financial Statements Amendments reinstating the equity method as an accounting option for investments in subsidiaries, joint ventures and associates in an entity's separate financial statements. January 1, 2016 Page 13

18 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2015 SIGNIFICANT ACCOUNTING POLICIES (continued) B). Standards and amendments to the standards issued but not effective (continued). Amendments to : Description Effective date IAS 28 Investments in Associates and Joint Ventures Amendments regarding the sale or contribution of assets between an investor and its associate or joint venture. January 1, 2016 IAS 38 Amendments regarding the application of the consolidation exception. Intangible Assets Amendments regarding the clarification of acceptable methods of depreciation and amortization. January 1, 2016 IAS 41 IFRS for SMEs Agriculture Amendments bringing bearer plants into the scope of IAS 16 Amendments as the result of the first comprehensive review. January 1, 2016 January 1, 2017 Annual Improvements to IFRS from September 2014 IFRS 5 : Non-current Assets Held for Sale and Discontinued Operations IFRS 7 : Financial Instruments: Disclosures January 1, 2016 IAS 19 : Employee Benefits IAS 34 : Interim Financial Reporting The management anticipates that the new standards will be adopted in the Company s accounting policies for the period beginning on or after the effective date of the pronouncement, and those new standards that have been issued but are not relevant to the Company s operations will not be expected to have a material impact on the Company s financial statements. Page 14

19 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.4 Significant accounting policies Contributions Gross contributions written comprise the total contributions receivable for the whole period of cover provided by the contracts entered into during the accounting periods and is recognized on the date on which the policy commences. Contributions and retakaful contributions are taken into income over the terms of the policies to which they relate. Unearned contributions represent the portion of net contribution written relating to the unexpired period of coverage calculated at 40% of the net contribution for all insurance classes except for marine cargo insurance which is calculated at 25%. The change in the provision for unearned contribution is taken to the consolidated statement of income in order that revenue is recognised over the period of risk. Further for Takaful (life) business, a mathematical reserve is provided as of the end of the reporting period, which is calculated and approved by an external actuarial values. Commissions received and paid Commissions received and paid are recognized at the time policies are written. Claims Claims incurred consist of amounts payable to contract holders and third parties and related loss adjustment expenses, net of salvage and other recoveries and are charged to income as incurred. Gross outstanding claims comprise the gross estimated cost of claims incurred but not settled at the end of the reporting period, whether reported or not. Provisions for reported claims, but not settled as at the end of the reporting period, are made on the individual case estimates. In addition, a provision based on the Group s prior experience is maintained for the cost of settling claims incurred but not reported at the end of the reporting period. Any difference between the provisions at the end of the reporting period and settlements and provisions in the following year is included in the underwriting account for that year. Page 14

20 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.5 Significant accounting policies (Continued) Claims (Continued) The Group does not discount its liability for unpaid claims as substantially all claims are expected to be paid within 12 months from the end of the reporting period. Liability adequacy test At the end of each reporting period, the Group assesses whether its recognized insurance liabilities are adequate using current estimates of future cash flows under its insurance contracts. If that assessment shows that the carrying amount of its insurance liabilities is inadequate in the light of estimated future claims flows, the entire deficiency is immediately recognized in the consolidated statement of income. Retakaful The Group enters into agreements with other parties for retakaful purposes, in order to minimize financial exposure from large claims, in the normal course of business for all of its business classes. Retakaful contract assets represent balances due from retakaful companies. Recoverable amounts are estimated in a manner consistent with the outstanding claims provision and are in accordance with the retakaful contract. Retakaful arrangements do not relieve the Group from its obligations to policyholders. Contribution and claims on assumed retakaful are recognised as income and expenses in the same manner as they would be if the retakaful were considered direct business, taking into account the product classification of the retakful business. Retakaful assets are reviewed for impairment at the end of each reporting period or more frequently when an indication of impairment arises during the reporting year. Impairment occurs when there is objective evidence, as a result of an event that occurred after initial recognition of the retakaful asset, that the Group may not receive all outstanding amounts due under the terms of the contract and the event has a reliably measureable impact on the amounts that the Group will receive from the retakaful companies. The impairment loss is recorded in the consolidated statement of income. The Group enters into agreements with other parties for retakaful purposes, in order to minimize financial exposure from large claims, in the normal course of business for all of its business classes. Retakaful contract assets represent balances due from retakaful companies. Recoverable amounts are estimated in a manner consistent with the outstanding claims provision and are in accordance with the retakaful contract. Retakaful arrangements do not relieve the Group from its obligations to policyholders. Contribution and claims on assumed retakaful are recognised as income and expenses in the same manner as they would be if the retakaful were considered direct business, taking into account the product classification of the retakful business. Retakaful assets are reviewed for impairment at the end of each reporting period or more frequently when an indication of impairment arises during the reporting year. Impairment occurs when there is objective evidence, as a result of an event that occurred after initial recognition of the retakaful asset, that the Group may not receive all outstanding amounts due under the terms of the contract and the event has a reliably measureable impact on the amounts that the Group will receive from the retakaful companies. The impairment loss is recorded in the consolidated statement of income. Retakaful contract liabilities represent balances due to retakaful companies. Amounts payable are estimated in a manner consistent with the associated retakaful contract. Contributions and claims are presented on a gross basis for both ceded and assumed retakaful. Page 15

21 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.5 Significant accounting policies (Continued) Retakaful The Group enters into agreements with other parties for retakaful purposes, in order to minimize financial exposure from large claims, in the normal course of business for all of its business classes. Retakaful contract assets represent balances due from retakaful companies. Recoverable amounts are estimated in a manner consistent with the outstanding claims provision and are in accordance with the retakaful contract. Retakaful arrangements do not relieve the Group from its obligations to policyholders. Contribution and claims on assumed retakaful are recognised as income and expenses in the same manner as they would be if the retakaful were considered direct business, taking into account the product classification of the retakful business. Retakaful assets are reviewed for impairment at the end of each reporting period or more frequently when an indication of impairment arises during the reporting year. Impairment occurs when there is objective evidence, as a result of an event that occurred after initial recognition of the retakaful asset, that the Group may not receive all outstanding amounts due under the terms of the contract and the event has a reliably measureable impact on the amounts that the Group will receive from the retakaful companies. The impairment loss is recorded in the consolidated statement of income. Retakaful contract liabilities represent balances due to retakaful companies. Amounts payable are estimated in a manner consistent with the associated retakaful contract. Contributions and claims are presented on a gross basis for both ceded and assumed retakaful. Income from deposits Income from deposits with banks is accounted for on the basis of the Group s share of profits distributed by the banks taking into account the principal outstanding. Rental income Rental income is recognized on a straight line basis based on the term of the contract. Dividend income Dividend income is recognized when the right to receive the payment is established. Wakala fees Al Khaleej Takaful Group Q.S.C. The Company manages the takaful operations on behalf of the participants for a wakala fee calculated as an amount that equals the general and administration, depreciation and finance costs for the year. In the prior years the wakala fee was calculated as a proportion of the gross contributions. Qatar Takaful Company S.O.C The Wakala fee is calculated as a proportion of the gross contributions for the year. Cash and cash equivalents For the purpose of the consolidated statement of cash flows, cash and cash equivalents consists any of cash on hand and bank balances. Page 16

22 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.5 Significant accounting policies (Continued) Investment securities Investment securities are initially recognized at cost, being the fair value of the consideration given and including incremental acquisition charges. Equity type investments classified as fair value through equity are recognised and derecognised, on a trade date basis, when the Group becomes, or ceases to be, a party to the contractual provisions of the instrument. After initial recognition, equity type investments classified as fair value through equity are measured at fair value unless fair value cannot be reliably measured, with unrealized gains or losses reported as a separate component of equity until the investment is derecognized or the investment is determined to be impaired. On derecognition or impairment, the cumulative gain or loss previously reported in equity is transferred to the consolidated statement of income for the period. For those equity instruments where the Group is unable to determine a reliable measure of fair value on a continuing basis, the investment is measured at cost. If an equity type investment classified as fair value through equity is impaired, an amount comprising the difference between its cost and its current fair value, less any impairment loss previously recognized in the consolidated statement of income, is transferred from equity to the consolidated statement of income. Reversals in respect of equity type instruments classified as fair value through equity are not recognized in the consolidated statement of income. Investments in debt type instruments are classified and measured at amortized cost and are re-measured using the effective profit rate method. Investment in an associate The Group s investment in associate is accounted for under the equity method of accounting. An associate is an entity in which the Group exercises significant influence and which are neither a subsidiary nor joint venture. Under the equity method of accounting, investment in the associate is carried in the consolidated statement of financial position at cost, plus post acquisition changes in the Group s share of net assets of the associate, less any impairment in value. The consolidated statement of income reflects the Group s share of the results of its associate. Unrealized profits and losses resulting from transactions between the Group and its associate are eliminated to the extent of the Group s interest in the associate. The financial statements of the associate are prepared for the same reporting period as the parent company. Where necessary, adjustments are made to bring the accounting policies in line with those of the Group. After application of the equity method, the Group determines whether it is necessary to recognize an additional impairment loss on the Group s investment in its associates. The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognizes the amount in the consolidated statement of income. Upon loss of significant influence over the associate, the Group measures and recognizes any retained investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognized in profit or loss. Investments in associates held for disposal within twelve months are carried at cost less impairment, if any. Page 17

23 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.5 Significant accounting policies (Continued) Investment properties Land and building are considered as investment properties only when they are being held to earn rentals or capital appreciation or both. Investment properties are carried at cost less accumulated depreciation calculated on a straight line basis over a period of 20 years. Land held under investment properties is not depreciated. Investment properties are derecognized 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. The difference between the net disposal proceeds and the carrying amount of the asset is recognized in the consolidated statement of income in the period of derecognition. Property and equipment Property and equipment is initially recorded at cost less accumulated depreciation and any impairment in value. Freehold land is not depreciated. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets as follows: Building 20 years Furniture, fixtures and office equipments 5 years Computers 5 years Vehicles 5 years Decorations and fittings 5 years Other capital assets 5 years Capital work-in-progress is not depreciated. The carrying amounts are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount, being the higher of their fair value less costs to sell and their value in use. An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated statement of income in the year the asset is derecognized. Expenditure incurred to replace a component of an item of property and equipment that is accounted for separately is capitalised and the carrying amount of the component that is replaced is written off. Other subsequent expenditure is capitalised only when it increases future economic benefits of the related item of property and equipment. All other expenditure is recognised in the consolidated statement of income as the expense is incurred. Impairment and uncollectibility of financial assets An assessment is made at the end of each reporting period to determine whether there is objective evidence that a specific financial asset may be impaired. If such evidence exists, any impairment loss is recognised in the consolidated statement of income. Impairment is determined as follows: (a) (b) (c) For assets carried at fair value through equity, impairment is the difference between cost and fair value, less any impairment loss previously recognised in the consolidated statement of income; For assets carried at cost, impairment is the difference between carrying value and the present value of future cash flows discounted at the current market rate of return for a similar financial asset; For assets carried at amortised cost, impairment is the difference between carrying amount and the present value of future cash flows discounted at the original effective profit rate. Page 18

24 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.5 Significant accounting policies (Continued) Impairment of non-financial assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. Derecognition of financial instruments Financial assets The derecognition of a financial asset takes place when the Group no longer controls the contractual rights that comprise the financial asset, which is normally the case when the asset is sold, or all the cash flows attributable to the asset are passed through to an independent third party. Financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Asset held for sale An asset is classified as held for sale if its carrying amount will be recovered principally through a sale transaction, not through continuing use. This asset may be a component of an entity, a disposal group or an individual non-current asset. An asset that is classified as held for sale is stated at the lower of carrying amount and fair value less costs to sell. The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Islamic bank facilities All bank facilities are initially recognized at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, the facilities are subsequently measured at amortised cost using the effective profit rate method. Gains and losses are recognised in the profit or loss when liabilities are derecognised. Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Offsetting Financial assets and liabilities are offset and the net amount is reported in the consolidated statement of financial position only when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liability simultaneously. Income and expense is not offset in the consolidated statement of income unless required or permitted by any accounting standard or interpretation. Page 19

25 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.5 Significant accounting policies (Continued) Employees end of service benefits End of service gratuity plans Under the Law No. 14 of 2004, the Group provides end of service benefits to its employees. The entitlement to these benefits is based upon the employees final salary and length of service, subject to the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment. Pension plan Under Law No. 24 of 2002 on Retirement and Pension, the Group is required to make contributions to a Government fund scheme for Qatari employees calculated as a percentage of the Qatari employees salaries. The Group s obligations are limited to these contributions, which are expensed when due. Foreign currencies Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities, denominated in foreign currencies, are retranslated at the functional currency rate of exchange ruling at the end of the reporting period. Non-monetary items measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction and are not subsequently restated. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. All foreign exchange differences are taken to the consolidated statement of income except when it relates to items where gains or losses are recognised directly in equity, where the gain or loss is then recognised net of the exchange component in equity. 3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES Fair values The fair values of financial investments that are actively traded in organized financial markets is determined by reference to quoted market bid prices for assets and offer prices for liabilities at the close of business on the end of the reporting period. For financial instruments where there is no active market, the fair value is determined by using valuation techniques. Such techniques include using recent arm's length transactions, reference to the current market value of another instrument which is substantially the same and/or discounted cash flow analysis. For discounted cash flow techniques, estimated future cash flows are based on management's best estimates and the discount rate used is a market related rate for a similar instrument. If the fair value cannot be measured reliably, financial instruments are measured at cost. Judgements In the process of applying the Group s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements. Impairment of investments The Group treats equity type investments classified as fair value through equity as impaired when there has been a significant or prolonged decline in the fair value below their cost or where other objective evidence of impairment exists. The determination of what is significant or prolonged requires considerable judgement. Significant is to be evaluated against the original cost of the investment and prolonged against the period in which the fair value has been below its original cost. In addition, the Group evaluates other factors, including normal volatility in share price for quoted equities and the future cash flows and the discount factors for unquoted equities. Page 20