RESO Insurance Closed Joint-Stock Company

Transcription

1 RESO Insurance Closed Joint-Stock Company Financial Statements and Independent Auditor s Report For the Year Ended 31 December 2015

2 Contents STATEMENT OF MANAGEMENT S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER INDEPENDENT AUDITORS REPORT... 3 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER

3 STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER2015 Management is responsible for the preparation of the financial statements that present fairly the financial position of"reso" Insurance Closed Joint-Stock Company (the Company) as of31december2015, and the results of its operations, cash flows and changes in shareholders' equity for the year then ended, in compliance with International Financial Reporting Standards ("IFRS"). In preparing the financial statements, management is responsible for: properly selecting and applying accounting policies; presenting information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; providing additional disclosures whel!_ compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Company's financial position and financial performance; making an assessment of the Company' s ability to continue as a going concern. Management is also responsible for: Designing, implementing and maintaining an effective and sound system of internal controls, throughout the Company; Maintaining adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company, and which enable them to ensure that the financial statements of the Company comply with IFRS; Maintaining statutory accounting records in compliance with legislation and accounting standards of the Republic of Armenia; Taking such steps as are reasonably available to them to safeguard the assets of the Company; and Preventing and detecting fraud and other irregularities. The financial statements of the Company for the year ended 31December2015 were authorized for issue by the Management Board of the Company on 29 April On behalf of the Management Board: Samvel Grigoryan Executive Director Alina Khachatryan Acting Chief accountant 29 April 2016 Yerevan, Republic of Armenia

4 KPMG Armenia cjsc gth floor, Erebuni Plaza Business Center, 26/1 Vazgen Sargsyan Street Yerevan 0010, Armenia Te lephone ( Fax (1 OJ Internet Independent Auditors' Report To the Shareholders and the Board of Directors of "RESO" Insurance CJSC We have audited the accompanying financial statements of"reso" Insurance CJSC (the Company), which comprise the statement of financial position as at 31 December 2015, and the statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management 's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors ' 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 about whether the financial statements are free from 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 financial statements present fairly, in all material respects, the financial position of the Company as at 31 December 2015, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. KPMG Armenia cjsc, a compa ny incorporated under the Laws of the Republic of Armen ia, a member firm of the KPMG network of independent member firms aff iliated w ith KPMG International Cooperative ("KPMG International"}. a Swiss entity.

5 Independent Auditors' Report Page2 Emphasis of Matter We draw attention to the fact that the corresponding figures presented, excluding the adjustments described in note 4 to the financial statements, are based on the financial statements of the Company as at and for the year ended 31 December 2014, which were audited by other auditors whose report dated 30 April 2015 expressed an unmodified opinion on those statements. As part of our audit of the 2015 financial statements, we have audited the adjµstments described in note 4 to the financial statements that were applied to restate the 2014 financial statements. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2014 financial statements of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2014 financial statements taken as a whole. Our opinion is not qualified in respect of this matter. Tigran Gasparyan Managing Partner, Dire KPMG Armenia cjsc 29 April 2016

6 "RESO" Insurance Closed Joint-Stock Company Statement of profit or loss and other comprehensive income for the year ended 31 December 2015 In AMD thousand Notes Restated Gross premiums written 5 2,585,156 2,616,844 Written premiums ceded to reinsurers 5 (118,892) (124,088) Net premiums written 2,466,264 2,492,756 Cancelled premiums and provision for insurance receivables 5 (265,809) (384,655) Change in the gross provision for unearned premiums 5 (125,668) 831,693 Reinsurers' share of change in the gross provision for unearned premiums 5 (5,973) (13,423) Net earned premiums 2,068,814 2,926,371 Claims settled, net of reinsurance 5 (1,174,453) (2, 110, 785) Change in insurance contract provisions, net of reinsurance 5 50, ,686 Net claims incurred (1,124,290) (1,652,099) Subrogation and recoveries, net of provision for impairment losses 5 57,876 (2,783) Acquisition costs 5 (611,359) (631,399) Change in deferred acquisition costs 5 54,077 (89,036) Net reinsurance commission income 5 26,778 30,986 Other insurance expenses 5 (68,798) (124,502) Insurance activity result 403, ,538 Interest income 6 (a) 273, ,260 Interest expense 6 (b) (64,095) (145,655) Other investment expense 6 (c) (12,171) (14,880) Other operating income 4,997 5,401 Administrative expenses 7 (597,731) (781,478) (Impairment loss )/recovery of provisions 8 (24,171) 3,610 Loss before tax (16,499) (123,204) Income tax expense 9 (79,500) Loss and total comprehensive loss for the year (16,499) (202,704) The financial statements as set out on pages 5 to 45 were approved by management on 29 April 2016 and were signed on its behalf by: Samvel Grigoryan Executive Director Alina Khachatcyan Acting Chief Accountant The notes on pages 9 to 45 form an integral part of these financial statements. 5

7 "RESO" Insurance Closed Joint-Stock Company Statement of financial position as at 31 December 2015 In AMD thousand Notes 31 December December 2014 Assets Cash and cash equivalents Bank deposits Financial instruments at fair value through profit or loss - Held by the Company - Pledged under sale and repurchase agreements Loans issued Insurance and reinsurance receivables Reinsurers' share of insurance contract provisi9ns Deferred acquisition costs Property, equipment and intangible assets Other assets Current tax asset Total assets ,475 1,940,374 87, ,002 23, ,917 64, , ,248 53, ,560 3,827,930 Restated 22,566 1,483, , ,347 54, ,538 72, , ,653 94, ,309 3,956,375 Liabilities and shareholders' equity Liabilities Insurance contract provisions 17 1,258,100 1,184,756 Liabilities under repurchase agreements , ,434 Insurance and reinsurance payables Other liabilities , , , ,711 Subordinated debt ,232 1,005,868 Total liabilities 2,415,735 3,007,681 Shareholders' equity Share capital 23 2,350,000 1,870,000 Accumulated loss (937,805) (921,306) Total shareholders' equity 1,412, ,694 Total liabilities and shareholders' equity 3,827,930 3,956,375 Samvel Grigoryan Executive Director Alina Khac'fmtryan Acting Chief Accountant The notes on pages 9 to 45 form an integral part of these financial statements. 6

8 "RESO" Insurance Closed Joint-Stock Company Statement of changes in equity for the year ended 31December2015 In AMD thousand Notes Share capital Accumulated loss Total Balance at 1 January 2014 Total comprehensive loss Loss for the year (restated) Transactions with owners Dividends on preference shares 23 Balance at 31 December 2014 (restated) Total comprehensive loss Loss for the year Transactions with owners Shares issued 23 Balance at 31 December ,870,000 (676,662) (202,704) (41,940) 1,870,000 (921,306) (16,499) 480,000 2,350,000 (937,805) 1,193,338 (202,704) (41,940) 948,694 (16,499) 480,000 1,412,195 Alina Khachatryan Acting Chief Accountant The notes on pages 9 to 45 form an integral part of these financial statements. 7

9 "RESO" Insurance Closed Joint-Stock Company Statement of cash flows for the year ended 31 December 2015 In AMD thousand Notes Cash flows from operating activities Insurance premiums received 2,428,656 2,960,422 Reinsurance premiums paid, net of commission income (98,851) (76,689) Claims and benefits paid (1,162,201) (1,919,455) Acquisition costs paid (572,818) (413,100) Subrogation and recoveries 45,337 32,894 Other insurance expenses (60,897) (295,242) Administrative expenses (559,861) (758,096) Changes in operating assets and liabilities: Decrease in other assets 38,873 14,069 Decrease in loans issued 9,918 8,584 Decrease in other liabilities ( 45,136) (8,982) Net cash from/( used in) operating activities before income taxes paid 23,020 (455,595) Income taxes paid (20,344) Net cash from/( used in) operations 23,020 (475,939) Cash flows from investing activities Interest income 311, ,968 Transferred to bank deposits (2,348,310) (1, 736,368) Proceeds from bank deposits 1,881,174 3,849,260 Acquisition of financial assets at fair value through profit or loss (384,042) Proceeds from financial assets at fair value through profit or loss 1,086,000 Purchases of property, equipment and intangible assets (362,622) (30,481) Proceeds from disposal of property, equipment and intangible assets 18,559 Net cash from investing activities 183,235 2,514,938 Cash flows from financing activities Interest paid (91,256) (219,263) Cash paid on repurchase agreements (107,958) (502,454) Borrowings and subordinated debt repaid (571) (1,240,820) Dividends paid on preference shares 23 (125,890) Net cash used in financing activities (199,785) (2,088,427) Net increase/( decrease) in cash and cash equivalents 6,470 (49,428) Effect of changes in exchange rates on cash and cash equivalents (561) 1,356 Cash and cash equivalents at beginning of the year 22,566 70,638 Cash and cash equivalents at end of the year 10 28,475 22,566 The notes on pages 9 to 45 form an integral part of these financial statements. 8

10 1. Background a) Organisation and operations RESO Insurance Closed Joint-Stock Company (the Company) was established in 2008 in the Republic of Armenia as a closed joint-stock company. The Company has a non-life insurance license to provide 10 types of insurance services in the Republic of Armenia. The activities of the Company are regulated by the Central Bank of Armenia ( CBA ) and the Armenian Motor Insurers Bureau. The Company conducts business throughout the Republic of Armenia from its head office and through its agents network. The Company s registered address of the head office is 62/93 Komitas Avenue, Yerevan 0014, Republic of Armenia. At 31 December 2015 the Company employed 97 full time employees and had 256 commission based agents (2014: 102 full time employees and 1,919 commission based agents). The Company's shareholders are: Polygraphia CJSC (50%) and CIS Equity Partners Limited LLC (50 %). The Company is ultimately controlled by three individuals Sergey Sarkisov (25%), Nikolay Sarkisov (25%) and Gagik Zakaryan (50%). b) Armenian business environment The Company s operations are located in Armenia. Consequently, the Company is exposed to the economic and financial markets of Armenia, which display emerging-market characteristics. The legal, tax and regulatory frameworks continue to develop, but are subject to varying interpretations and frequent changes that, together with other legal and fiscal impediments, contribute to the challenges faced by entities operating in the Armenia. The financial statements reflect management s assessment of the impact of the Armenian business environment on the operations and the financial position of the Company. The future business environment may differ from management s assessment. 2. Basis of preparation a) Statement of compliance These financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ). b) Basis of measurement These financial statements have been prepared on the historical cost basis except for financial instruments at fair value through profit and loss that are measured at fair values. c) Presentation currency The national currency of the Republic of Armenia is the Armenian Dram ( AMD ), which is the Company s functional currency and the currency in which these financial statements are presented. Financial information presented in AMD has been rounded to the nearest thousand. 9

11 d) Use of estimated and judgements Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with IFRS. Actual results could differ from these estimates. In particular, information about significant areas of estimation uncertainty and critical judgments in applying accounting policies are described in the following notes: Provision for insurance receivables note 14; Insurance contract provisions note 17; Deferred tax assets note Significant accounting policies The following significant accounting policies have been applied in the preparation of the financial statements. The accounting policies have been consistently applied. a) Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currency at the foreign exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the foreign exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies, which are stated at historical cost, are translated to the functional currency at the foreign exchange rate ruling at the date of the transaction. Exchange differences are recognised in profit or loss in the period in which they arise. The relevant exchange rates are as follows: Average rate Spot rate December December 2014 AMD/1 US Dollar , AMD/1 Euro , b) Insurance contracts (i) Classification of contracts Contracts under which the Company accepts significant insurance risk from another party (the policyholder ) by agreeing to compensate the policyholder or other beneficiary if a specified uncertain future event (the insured event ) adversely affects the policyholder or other beneficiary are classified as insurance contracts. Insurance risk is risk other than financial risk. Financial risk is the risk of a possible future change in one or more of a specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, a credit rating or credit index or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract. Insurance contracts may also transfer some financial risk. Insurance risk is significant if, and only if, an insured event could cause the Company to pay significant claims. Once a contract is classified as an insurance contract, it remains classified as an insurance contract until all rights and obligations are extinguished or expire. Contracts under which the transfer of insurance risk to the Company from the policyholder is not significant are classified as financial instruments. 10

12 (ii) Recognition and measurement of contracts General insurance contracts Premiums Gross premiums written comprise premiums on contracts entered into during the year, irrespective of whether they relate in whole or in part to a later accounting period. Premiums are disclosed gross of commission payable to intermediaries, insurance premium taxes, levies and similar mandatory contributions. The earned portion of premiums received is recognised as revenue. Premiums are earned from the date of attachment of risk, over the indemnity period using the daily pro-rata method. Outward reinsurance premiums are recognised as an expense in accordance with the daily pro-rata method. The portion of outward reinsurance premiums not recognised as an expense is treated as a prepayment. Policy cancellations Policies are cancelled if there is objective evidence that the policyholder is not willing or able to continue paying policy premiums. Cancellations therefore affect mostly those policies where policy premiums are paid in instalments over the term of the policy. Cancellations are reported separately from gross written premiums. Unearned premium provision The provision for unearned premiums comprises the proportion of gross premiums written which is estimated to be earned in the following or subsequent financial years, computed separately for each insurance contract using the daily pro-rata method. The provision for unearned premiums is recognized net of estimated cancellations of policies in force as of the reporting date. Claims Net claims incurred comprise claims settled during the financial year together with the movement in the provision for outstanding claims. Outstanding claims reserve (OCR) comprise provisions for the Company s estimate of the ultimate cost of settling all claims incurred but unpaid at the statement of financial position date, whether reported or not, and provisions for related external claims handling expenses. Claims outstanding are assessed by reviewing individual claims and making allowance for claims incurred but not yet reported (IBNR), the effect of both internal and external foreseeable events, such as changes in external claims handling expenses, legislative changes and past experience and trends. Provisions for claims outstanding are not discounted. IBNR is established to recognize the estimated amount of losses that have already been incurred but not yet reported to the Company. Both IBNR and OCR are established to recognize estimated costs (including expenses) on full settlement of losses. As no information on incurred losses is available, the Company relies on its experience taking into account current trends and other relevant factors. IBNR is estimated based on actuarial and statistical forecasts of expected expenses for full settlement of losses and management thereof. The analysis is performed based on present facts and conditions, forecasts, estimation of future inflation and other social and economic factors. Factors used for determining the projected amount of incurred but not reported loss reserve also include, for instance, data on dynamics in frequency of loss events as well as time delay in loss reporting. From time to time, as new information (including information on actual losses) becomes available, the IBNR reserve is analyzed and reviewed. The estimation of claims incurred but not reported ( IBNR ) is generally subject to a greater degree of uncertainty than the estimates of claims already notified, where more information is available. IBNR claims may often not be apparent to the Company until sometime after the occurrence of the event giving rise to the claim. Due to the short tail nature of the Company s portfolio a substantial amount of claims are settled within one year after the occurrence of the event giving rise to the claim. The cost of outstanding claims and the IBNR provisions are estimated using a range of statistical methods. Such methods extrapolate the development of paid and incurred claims, average cost per claim and ultimate claim numbers for each accident year based upon observed development of earlier years and expected loss ratios. 11

13 The key statistical methods used are: Chain ladder methods, which use historical data to estimate the paid and incurred to date proportions of the ultimate claim cost; Expected loss ratio methods, which use the Company s expectation of the loss ratio for a class of business; and Benchmarking methods, which use the experience of comparable, more mature, classes to estimate the cost of claims. Bornhuetter-Ferguson methods, which is a combination of chain ladder methods and expected loss ratio methods. The actual method or blend of methods used varies by the class of insurance contract based on observed historical claims development. Large claims are generally assessed separately and are measured on a case by case basis or projected separately in order to allow for the possible distorting effects on development and incidence of these large claims. IBNR provisions and provisions for outstanding claims are initially estimated at a gross level and a separate calculation is carried out to estimate the size of reinsurance recoveries. The method uses historical data, gross IBNR estimates and the terms and conditions of the reinsurance contracts to estimate the carrying value of the IBNR reinsurance asset. Anticipated reinsurance and subrogation recoveries are recognised separately as assets. Reinsurance and subrogation recoveries are assessed in a manner similar to the assessment of claims outstanding. Adjustments to the amounts of claims provisions established in prior years are reflected in the financial statements for the period in which the adjustments are made, and disclosed separately if material. The methods used, and the estimates made, are reviewed regularly. Assumptions The assumptions that have the greatest effect on the measurement of general insurance contract provisions are the expected loss ratios for the most recent accident years. The expected loss ratio is the ratio of expected claims to earned premiums. When determining the total liability, the projection of future cash flows includes the estimated values of parameters that can affect the amount of an individual claim (e.g. frequency of claims, recovery time, time between date of occurrence of the insured event and the settlement date). (iii) Reinsurance The Company cedes reinsurance in the normal course of business for the purpose of limiting its potential net loss through the partial transfer of risk to reinsurers. Reinsurance arrangements do not relieve the Company from its direct obligations to its policyholders. Premiums ceded and benefits reimbursed are presented in profit or loss and statement of financial position on a gross basis. Reinsurance assets include balances due from reinsurance companies for ceded insurance liabilities. Amounts recoverable from reinsurance are estimated in a manner consistent with the outstanding claims provision or settled claims associated with the reinsured policy. Premiums on reinsurance assumed are recognised as revenue and accounted for as if the reinsurance was considered direct business, taking into account the product classification of the reinsured business. Amounts recoverable under reinsurance contracts are assessed for impairment at each statement of financial position date. Such assets are deemed impaired if there is objective evidence, as a result of an event that occurred after its initial recognition, that the Company may not recover all amounts due and that the event has a reliably measurable impact on the amounts that the Company will receive from the reinsurer. Only rights under contracts that give rise to significant transfer of insurance risk are accounted for as reinsurance assets. Rights under contracts that do not transfer significant insurance risk are accounted for as financial instruments. 12

14 (iv) Deferred acquisition costs Acquisition costs, representing commissions, which vary with and are incurred in connection with the acquisition or renewal of insurance policies, are deferred and amortised over the period in which the related written premiums are earned. Deferred acquisition costs are calculated separately for each line of business and are reviewed by line of business at the time of the policy issue and at the end of each accounting period to ensure they are recoverable based on future estimates. (v) Liability adequacy test At each statement of financial position date, liability adequacy tests are performed to determine if the insurance contract provisions, less deferred acquisition cost and any related intangible assets, such as those acquired in a business combination or portfolio transfer, are adequate. Current best estimates of all future contractual cash flows and related expenses, such as claims handling expenses, and investment income from assets backing the insurance contract provisions are used in performing these tests. If a shortfall is identified the related deferred acquisition cost and related intangible assets are written down and, if necessary, an additional provision is established. The deficiency is recognised in profit or loss for the year. The test is performed on a total portfolio basis. (vi) Insurance receivables and payables Amounts due to and from policyholders, agents and reinsurers are financial instruments and are included in insurance receivables and payables, and not in insurance contract provisions or reinsurance assets. Amounts due from policyholders are recognized net of estimated cancellations of policies in force as at the reporting date. The Company reviews its insurance receivables to assess impairment on a regular basis. c) Cash and cash equivalents The Company considers cash, current account balances and demand deposits to be cash and cash equivalents. d) Financial instruments (i) Classification Financial instruments at fair value through profit or loss are financial assets or liabilities that are: acquired or incurred principally for the purpose of selling or repurchasing in the near term; part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking; a derivative (except for a derivative that is a designated and effective hedging instrument); or, upon initial recognition, designated by the entity as at fair value through the profit or loss. The Company may designate financial assets and liabilities at fair value through profit or loss where either: the assets or liabilities are managed, evaluated and reported internally on a fair value basis; the designation eliminates or significantly reduces an accounting mismatch which would otherwise arise; or, the asset or liability contains an embedded derivative that significantly modifies the cash flows that would otherwise be required under the contract Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than those that the Company: intends to sell immediately or in the near term; upon initial recognition designates as at fair value through profit or loss; upon initial recognition designates as available-for-sale; or, may not recover substantially all of its initial investment, other than because of credit deterioration 13

15 (ii) Recognition Financial assets and liabilities are recognized in the statement of financial position when the Company becomes a party to the contractual provisions of the instrument. All regular way purchases of financial instruments are accounted for at the settlement date. (iii) Measurement A financial asset or liability is initially measured at its fair value plus, in the case of a financial asset or liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or liability. Subsequent to initial recognition, financial assets, including derivatives that are assets, are measured at their fair values, without any deduction for transaction costs that may be incurred on sale or other disposal, except for loan sand receivables which are measured at amortized cost using the effective interest method. All financial liabilities, other than those designated at fair value through profit or loss and financial liabilities that arise when a transfer of a financial asset carried at fair value does not qualify for derecognition, are measured at amortised cost. Amortized cost is calculated using the effective interest rate method. Premiums and discounts, including initial transaction costs, are included in the carrying amount of the related instrument and amortized based on the effective interest rate of the instrument. (iv) Fair value measurement principles Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal, or in its absence, the most advantageous market to which the Company has access at that date. The fair value of a liability reflects its non-performance risk. When available, the Company measures the fair value of an instrument using quoted prices in an active market for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. When there is no quoted price in an active market, the Company uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all the factors that market participants would take into account in these circumstances The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price, i.e., the fair value of the consideration given or received. If the Company determines that the fair value at initial recognition differs from the transaction price and the fair value is evidenced neither by a quoted price in an active market for an identical asset or liability nor based on a valuation technique that uses only data from observable markets, the financial instrument is initially measured at fair value, adjusted to defer the difference between the fair value at initial recognition and the transaction price. Subsequently, that difference is recognised in profit or loss on an appropriate basis over the life of the instrument but no later than when the valuation is supported wholly by observable market data or the transaction is closed out. Assets and long positions are measured at a bid price; liabilities and short positions are measured at an asking price. Where the Company has positions with offsetting risks, mid-market prices are used to measure the offsetting risk positions and a bid or asking price adjustment is applied only to the net open position as appropriate. Fair values reflect the credit risk of the instrument and include adjustments to take account of the credit risk of the Company and the counterparty where appropriate. Fair value estimates obtained from models are adjusted for any other factors, such as liquidity risk or model uncertainties, to the extent that the Company believes a third-party market participant would take them into account in pricing a transaction. The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period during which the change has occurred. 14

16 The Company measures fair values using the following fair value hierarchy, which reflects the significance of the inputs used in making the measurements: (v) Level 1: quoted market price (unadjusted) in an active market for an identical instrument. Level 2: inputs other than quotes prices included within Level 1 that are observable either directly (i.e., as prices) or indirectly (i.e., derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data. Level 3: inputs that are unobservable. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments. Gains and losses on subsequent measurement A gain or loss arising from a change in the fair value of a financial asset or liability classified as at fair value through profit or loss is recognized in profit or loss. For financial assets and liabilities carried at amortised cost, a gain or loss is recognized in profit or loss when the financial asset or liability is derecognized or impaired, and through the amortization process. (vi) Derecognition A financial asset is derecognised when the contractual rights to the cash flows from the financial asset expire or when the Company transfers substantially all of the risks and rewards of ownership of the financial asset. Any rights or obligations created or retained in the transfer are recognized separately as assets or liabilities. A financial liability is derecognised when it is extinguished. e) Repurchase and reverse repurchase agreements Securities sold under sale and repurchase ( repo ) agreements are accounted for as secured financing transactions, with the securities retained in the statement of financial position and the counterparty liability included in amounts payable under repo transactions. The difference between the sale and repurchase prices represents interest expense and is recognized in profit or loss over the term of the repo agreement using the effective interest rate method. Securities purchased under agreements to resell ( reverse repo ) are recorded as amounts receivable under reverse repo transactions. The difference between the purchase and resale prices represents interest income and is recognized in profit or loss over the term of the repo agreement using the effective interest rate method. If assets purchased under agreement to resell are sold to third parties, the obligation to return securities is recorded as a trading liability and measured at fair value. f) Offsetting Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. g) Property and equipment (i) Owned assets Items of property and equipment are stated at cost less accumulated depreciation and impairment losses. Where an item of property and equipment comprises major components having different useful lives, they are accounted for as separate items of property and equipment. 15

17 (ii) Depreciation Depreciation is charged to profit or loss on a straight-line basis over the estimated useful lives of the individual assets. Depreciation commences on the date of acquisition or, in respect of internally constructed assets, from the time an asset is completed and ready for use. The estimated useful lives are as follows: Buildings Office equipment Communication devices and computers Vehicles Capital improvements on leasehold property Useful life 40 years 3-5 years 3-5 years 5 years 20 years h) Intangible assets Intangible assets, which are acquired by the Company, are stated at cost less accumulated amortisation and impairment losses. Amortisation is charged to profit or loss on a straight-line basis over the estimated useful lives of intangible assets. The estimated useful lives are 10 years. i) Impairment (i) Financial assets carried at amortized cost Financial assets carried at amortized cost consist principally of financial instruments at amortized cost ( financial instruments at amortized cost ) and loans and receivables ( loans and receivables ). The Company reviews its financial instruments at amortized cost, to assess impairment on a regular basis. A financial instrument at amortized cost is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the financial instrument at amortized cost (a loss event) and that event (or events) has had an impact on the estimated future cash flows of the financial instrument at amortized cost that can be reliably estimated. If there is objective evidence that an impairment loss on a financial instrument at amortized cost has been incurred, the amount of the loss is measured as the difference between the carrying amount of the financial instrument at amortized cost and the present value of estimated future cash flows. Contractual cash flows adjusted on the basis of relevant observable data that reflect current economic conditions provide the basis for estimating expected cash flows. The Company reviews its loans and receivables, to assess impairment on a regular basis. A loan is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the loan and that event (or events) has had an impact on the estimated future cash flows of the loan that can be reliably estimated. The Company first assesses whether objective evidence of impairment exists individually for loans that are individually significant, and individually or collectively for loans that are not individually significant. If the Company determines that no objective evidence of impairment exists for an individually assessed loan, whether significant or not, it includes the loan in a Group of loans with similar credit risk characteristics and collectively assesses them for impairment. Loans that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss on a loan has been incurred, the amount of the loss is measured as the difference between the carrying amount of the loan and the present value of estimated future cash flows including amounts recoverable from guarantees and collateral discounted at the loan s original effective interest rate. Contractual cash flows and historical loss experience adjusted on the basis of relevant observable data that reflect current economic conditions provide the basis for estimating expected cash flows. 16

18 (ii) Non financial assets Other non financial assets, other than deferred taxes, are assessed at each reporting date for any indications of impairment. The recoverable amount of non financial assets is the greater of their fair value less costs to sell and their value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs. An impairment loss is recognised when the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. All impairment losses in respect of non financial assets are recognized in profit or loss and reversed only if there has been a change in the estimates used to determine the recoverable amount. Any impairment loss reversed is only reversed to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. j) Provisions A provision is recognised in the statement of financial position when the Company has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. k) Share capital (i) Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to issue of ordinary shares are recognised as a deduction from equity, net of any tax effects. (ii) Preference share capital Preference share capital is classified as equity if it is non-redeemable, or redeemable only at the Company s option, and any dividends are discretionary. Dividends thereon are recognised as distributions within equity upon approval by the Company s shareholders. Preference share capital is classified as a liability if it is redeemable on a specific date or at the option of the shareholders, or if dividend payments are not discretionary. Dividends thereon are recognised as interest expense in profit or loss as accrued. (iii) Repurchase of share capital When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs, is recognised as a decrease in equity. (iv) Dividends The ability of the Company to declare and pay dividends is subject to the rules and regulations of Armenian legislation. Dividends in relation to ordinary shares are reflected as an appropriation of retained earnings in the period when they are declared. l) Taxation Income tax comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised within other comprehensive income or in equity. 17

19 Current tax expenses is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. 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 reporting 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 temporary differences, unused tax losses and credits can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. m) Interest income and expenses and fee and commission income Interest income and expense are recognised in profit or loss as they accrue, taking into account the effective interest rate of the asset/liability or an applicable floating rate. Interest income and expense includes the amortisation of any discount or premium or other differences between the initial carrying amount of an interest bearing instrument and its amount at maturity calculated on an effective interest rate basis. Other fee and commission income is recognised when the corresponding service is provided. n) New standards and interpretations not yet adopted A number of new standards, amendments to standards, and interpretations are not yet effective as at 31 December 2015, and are not applied in preparing these financial statements. Of these pronouncements, potentially the following will have an impact on the financial position and performance. The Company plans to adopt this pronouncements when they become effective. New or amended standard IFRS 9 Financial Instruments Summary of the requirements IFRS 9, published in July 2014, replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial instruments, including a new expected credit loss model for calculating impairment on financial assets, and the new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. IFRS 9 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. Possible impact on financial statements The Company has not yet analysed the likely impact of changes on its financial statements resulting from the application of IFRS 9. IFRS 15 Revenue from Contracts with Customers IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. The core principle of the new standard is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard results in enhanced disclosures about revenue, provides guidance for transactions that were not previously addressed comprehensively and improves guidance for multiple-element arrangements. IFRS 15 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. The Company is assessing the potential impact on its financial statements resulting from the application of IFRS

20 New or amended standard Summary of the requirements IFRS 16 Leases IFRS 16 replaces the existing lease accounting guidance in IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a lease, SIC-15 Operating Leases Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. It eliminates the current dual accounting model for lessees, which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases. Instead, there is a single, on-balance sheet accounting model that is similar to current finance lease accounting. Lessor accounting remains similar to current practice i.e. lessors continue to classify leases as finance and operating leases. IFRS 16 is effective for annual reporting periods beginning on or after 1 January 2019, early adoption is permitted if IFRS 15 Revenue from Contracts with Customers is also adopted. Possible impact on financial statements The Company is assessing the potential impact on its financial statements resulting from the application of IFRS Correction of errors In preparation of these financial statements the management has restated certain comparative information in order to make correction of errors as explained below. In preparing the 2015 financial statements the Company identified errors in the assessment of impairment loss for insurance and reinsurance receivables. As a result, additional impairment allowance was recognized as at 31 December 2014 in respect of insurance and reinsurance receivables. The impact of the restatements are presented in the following tables. The changes did not have an impact on the statement of financial position as at 31 December Statement of financial position AMD 000 Insurance and reinsurance receivables Deferred tax liability Accumulated loss Amount as previously reported at 31 December ,973 (19,600) (634,471) Restatement (306,435) 19,600 (286,835) Restated amount at 31 December ,538 - (921,306) Statement of profit or loss and other comprehensive income AMD 000 Cancelled premiums and provision for insurance receivables Subrogation and recoveries, net of provision for impairment losses Income tax expense Amount as previously reported for 2014 (188,916) 107,913 (99,100) Restatement (195,739) (110,696) 19,600 Restated amount for 2014 (384,655) (2,783) (79,500) 19