RAS AL KHAIMAH NATIONAL INSURANCE COMPANY P.S.C. Independent auditor s report and financial statements for the year ended 31 December 2012

Transcription

1 RAS AL KHAIMAH NATIONAL INSURANCE COMPANY P.S.C. Independent auditor s report and financial statements for the year ended 31 December 2012

2 RAS AL KHAIMAH NATIONAL INSURANCE COMPANY P.S.C. Contents Pages Independent auditor's report 1-2 Statement of financial position 3 Income statement 4 Statement of comprehensive income 5 Statement of changes in equity 6 Statement of cash flows

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6 RAS AL KHAIMAH NATIONAL INSURANCE COMPANY P.S.C. 4 Income statement for the year ended 31 December 2012 Notes Insurance premium revenue ,529, ,490,195 Insurance premium ceded to re-insurers 19 (86,911,883) (74,427,710) Net insurance premium revenue ,617, ,062,485 Gross claims incurred 10 (111,051,526) (82,039,759) Insurance claims recovered from re-insurers 10 49,665,402 18,750,587 Net claims incurred (61,386,124) (63,289,172) Gross commission earned 7,836,650 7,360,358 Less: commission incurred (10,349,313) (12,911,966) Net commission incurred (2,512,663) (5,551,608) Underwriting profit 46,718,879 39,221,705 General and administrative expenses relating to underwriting activities (14,833,650) (13,576,046) Net underwriting profit 31,885,229 25,645,659 Investment and other income 20 5,569,028 2,024,456 Unallocated general and administrative expenses (4,944,550) (4,525,349) 32,509,707 23,144,766 Company s share of associate s loss for the year 7 (4,385,384) (3,261,491) Profit for the year 21 28,124,323 19,883,275 Basic earnings per share The accompanying notes form an integral part of these financial statements.

7 RAS AL KHAIMAH NATIONAL INSURANCE COMPANY P.S.C. 5 Statement of comprehensive income for the year ended 31 December 2012 Profit for the year 28,124,323 19,883,275 Other comprehensive (loss)/income Net gain/(loss) on revaluation of available-for-sale- Investments 532,449 (616,122) Reclassification adjustments relating to available-for-sale investments impaired during the year - 2,457,914 Share of other comprehensive income of associate 58, ,506 Board of Directors remuneration paid associate - (100,000) Board of Directors remuneration paid (1,140,000) (1,140,000) Other comprehensive (loss)/income for the year (548,960) 1,032,298 Total comprehensive income for the year 27,575,363 20,915,573 The accompanying notes form an integral part of these financial statements.

8 RAS AL KHAIMAH NATIONAL INSURANCE COMPANY P.S.C. Statement of changes in equity 6 for the year ended 31 December 2012 Share capital Statutory reserve Special reserve General reserve Cumulative changes in fair value of securities Retained earnings Balance at 31 December ,000,000 27,818,450 19,997,496 6,000,000 1,651,498 17,902, ,369,471 Profit for the year ,883,275 19,883,275 Other comprehensive income for the year ,272,298 (1,240,000) 1,032,298 Total comprehensive income for the year ,272,298 18,643,275 20,915,573 Total Cash dividend (15,000,000) (15,000,000) Transfer to retained earnings (Note 24.1) (6,000,000) - 6,000,000 - Transfer to reserves - 1,988,328 2, (1,990,832) - Balance at 31 December ,000,000 29,806,778 20,000,000-3,923,796 25,554, ,285,044 Profit for the year ,124,323 28,124,323 Other comprehensive loss for the year ,040 (1,140,000) (548,960) Total comprehensive income for the year ,040 26,984,323 27,575,363 Cash dividend (Note 24) (15,000,000) (15,000,000) Transfer to reserve - 2,812, (2,812,432) - Balance at 31 December ,000,000 32,619,210 20,000,000-4,514,836 34,726, ,860,407 The accompanying notes form an integral part of these financial statements.

9 RAS AL KHAIMAH NATIONAL INSURANCE COMPANY P.S.C. 7 Statement of cash flows for the year ended 31 December 2012 Cash flows from operating activities Profit for the year 28,124,323 19,883,275 Adjustments for: Depreciation of property and equipment 328, ,638 Depreciation of investment properties 194, ,765 Allowance for doubtful debts 800,000 - Provision for employees end of service indemnity 927, ,680 Loss from an associate 4,385,384 3,261,491 Dividend income (415,793) (275,721) Income from investment properties (199,081) (274,853) Unrealised (gain)/loss on financial assets at FVTPL (301,589) 444,458 Impairment loss on available-for-sale investments 533,707 3,717,123 Interest income (4,483,347) (5,290,898) Gain on disposal of property and equipment - (35,298) Operating cash flows before changes in operating assets and liabilities 29,894,503 22,995,660 Increase in insurance and other receivables (44,216) (2,991,164) Increase/(decrease) in insurance and other payables 6,225,904 (5,434,272) (Increase)/decrease in re-insurance contract assets (24,562,743) 21,458,754 Increase/(decrease) in insurance contract liabilities 30,785,366 (20,346,639) Cash generated from operations 42,298,814 15,682,339 Employees end of service indemnity paid (47,654) (392,401) Net cash generated from operating activities 42,251,160 15,289,938 Cash flows from investing activities Purchase of property and equipment (804,590) (175,123) Proceeds from disposal of property and equipment - 37,000 Dividend from an associate - 2,000,000 Increase in fixed deposits with banks maturity greater than three months (13,946,782) (5,966,140) Income from investment properties 199, ,853 Dividend received 415, ,721 Interest received 3,417,017 5,691,641 Net cash (used in)/ generated from investing activities (10,719,481) 2,137,952 Cash flows from financing activities Board of Directors remuneration paid (1,140,000) (1,140,000) Dividend paid (14,030,581) (14,812,566) Net cash used in financing activities `(15,170,581) (15,952,566) Net increase cash and cash equivalents 16,361,098 1,475,324 Cash and cash equivalents at the beginning of the year 33,117,943 31,642,619 Cash and cash equivalents at the end of the year (Note 23) 49,479,041 33,117,943 The accompanying notes form an integral part of these financial statements.

10 RAS AL KHAIMAH NATIONAL INSURANCE COMPANY P.S.C. 8 for the year ended 31 December General information Ras Al Khaimah National Insurance Company P.S.C. - Ras Al Khaimah (the "Company") is a public shareholding company, incorporated in the Emirate of Ras Al Khaimah by Emiri decree No. 20 dated 26 October 1976 which was amended by Emiri decree No. 10 dated 7 December 1985 and Emiri decree No. 3 dated 5 April 1997 issued by H.H. Sheikh Saqr Bin Mohammed Al Qasimi, the Ruler of the Emirate of Ras Al Khaimah and its dependencies. The Company is subject to the regulations of U.A.E. Federal Law No. 6 of 2007 on Establishment of Insurance Authority and Organization of Its Operations and is registered in the Insurance Companies Register of Insurance Authority of U.A.E., under registration number 7. The address of the Company's registered corporate office is P. O. Box 506, Ras Al Khaimah, United Arab Emirates. The principal activity of the Company is to undertake all classes of insurance business including life assurance, saving and accumulation of funds. The Company has written only general insurance policies to date. The Company operates through its head office in Ras Al Khaimah and branch offices in Dubai and Abu Dhabi. 2. Adoption of new and revised International Financial Reporting Standards (IFRSs) 2.1 New and revised IFRSs applied with no material effect on the financial statements The following new and revised IFRSs have been adopted in these financial statements. The adoption of these new and revised IFRSs has not had any material impact on the amounts reported for the current and prior years but may affect the accounting for future transactions or arrangements. Amendments to IFRS 1 Removal of Fixed Dates for First-Time Adopter. The amendments regarding the removal of the fixed dates provide the relief to the first-time adopters of IFRSs from reconstructing transactions that occurred before their date of transition to IFRS. The amendments are effective for annual periods beginning on or after 1 July 2011 with retrospective application. Amendments to IFRS 1 Severe Hyperinflation The amendments regarding severe hyperinflation provide guidance for entities emerging from severe hyperinflation either to resume presenting IFRS financial statements or to present IFRS financial statements for first time. The amendments are effective for annual periods beginning on or after 1 July 2011 with retrospective application. Amendments to IAS 12 Income Taxes Deferred Tax: Recovery of Underlying Assets The amendments provide an exception to the general principles of IAS 12 for investment property measured using the fair value model in IAS 40 Investment Property by the introduction of a rebuttable presumption that the carrying amount of the investment property will be recovered entirely through sale. The amendments are effective for annual periods beginning on or after 1 January 2012 with retrospective application. Amendments to IFRS 7 Disclosures Transfers of Financial Assets The amendments increase the disclosure requirements for transactions involving transfers of financial assets. These amendments are intended to provide greater transparency around risk exposures of transactions when a financial asset is transferred but the transferor retains some level of continuing exposure in the asset. The amendments also require disclosures where transfers of financial assets are not evenly distributed throughout the period. The amendments are effective for annual periods beginning on or after 1 July Entities need not provide the disclosures required by the amendments for any period presented that begins before the date of the initial application of the amendments.

11 RAS AL KHAIMAH NATIONAL INSURANCE COMPANY P.S.C Adoption of new and revised International Financial Reporting Standards (IFRSs) (continued) 2.2 New and revised International Financial Reporting Standards (IFRSs) in issue but not yet effective and not early adopted: The Company has not early applied the following new standards, amendments and interpretations that have been issued but not yet effective: New and revised IFRSs Amendments to IFRS 1 Government Loans provide relief to first-time adopters of IFRSs by amending IFRS 1 to allow prospective application of IAS 39 or IFRS 9 and paragraph 10A of IAS 20 Accounting for Government Grants and Disclosure of Government Assistance to government loans outstanding at the date of transition to IFRSs. Amendments to IFRS 7 Financial Instruments: Disclosures relating to disclosures about the initial application of IFRS. Amendments to IFRS 7 Financial Instruments: Disclosures enhancing disclosures about offsetting of financial assets and liabilities. Effective for annual periods beginning on or after 1 January January 2015 (or otherwise when IFRS 9 is first applied) 1 January 2013 IFRS 9 Financial Instruments issued in November 2009 introduces new requirements for the classification and measurement of financial assets. IFRS 9 amended in October 2010 includes the requirements for the classification and measurement of financial liabilities and for derecognition. 1 January 2015 Key requirements of IFRS 9 are described as follows: IFRS 9 requires all recognised financial assets that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement to be subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. All other debt investments and equity investments are measured at their fair values at the end of subsequent accounting periods.

12 RAS AL KHAIMAH NATIONAL INSURANCE COMPANY P.S.C Adoption of new and revised International Financial Reporting Standards (IFRSs) (continued) 2.2 New and revised International Financial Reporting Standards (IFRSs) in issue but not yet effective and not early adopted (continued): New and revised IFRSs Key requirements of IFRS 9 are described as follows (continued): Effective for annual periods beginning on or after The most significant effect of IFRS 9 regarding the classification and measurement of financial liabilities relates to the accounting for changes in the fair value of a financial liability (designated as at fair value through profit or loss) attributable to changes in the credit risk of that liability. Specifically, under IFRS 9, for financial liabilities that are designated as at fair value through profit or loss, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the recognition of the effects of changes in the liability's credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability's credit risk are not subsequently reclassified to profit or loss. Previously, under IAS 39, the entire amount of the change in the fair value of the financial liability designated as at fair value through profit or loss was presented in profit or loss. IFRS 10 Consolidated Financial Statements* uses control as the single basis for consolidation, irrespective of the nature of the investee. IFRS 10 requires retrospective application subject to certain transitional provisions providing an alternative treatment in certain circumstances. Accordingly, IAS 27 Separate Financial Statements* and IAS 28 Investments in Associates and Joint Ventures* have been amended for the issuance of IFRS 10. IFRS 11 Joint Arrangements* establishes two types of joint arrangements: Joint operations and joint ventures. The two types of joint arrangements are distinguished by the rights and obligations of those parties to the joint arrangement. Accordingly, IAS 28 Investments in Associates and Joint Ventures has been amended for the issuance of IFRS 11. IFRS 12 Disclosure of Interests in Other Entities* combines the disclosure requirements for an entity s interests in subsidiaries, joint arrangements, associates and structured entities into one comprehensive disclosure standard. 1 January January January 2013

13 RAS AL KHAIMAH NATIONAL INSURANCE COMPANY P.S.C Adoption of new and revised International Financial Reporting Standards (IFRSs) (continued) 2.2 New and revised International Financial Reporting Standards (IFRSs) in issue but not yet effective and not early adopted (continued): New and revised IFRSs IFRS 13 Fair Value Measurement issued in May 2011 establishes a single framework for measuring fair value and is applicable for both financial and non-financial items. Amendments to IAS 1 Presentation of Other Comprehensive Income. The amendments retain the option to present profit or loss and other comprehensive income in either a single statement or in two separate statements. However, items of other comprehensive income are required to be grouped into those that will and will not subsequently be reclassified to profit or loss with tax on items of other comprehensive income required to be allocated on the same basis. Effective for annual periods beginning on or after 1 January July 2012 Amendments to IAS 19 Employee Benefits eliminate the corridor 1 January 2013 approach and therefore require an entity to recognise changes in defined benefit plan obligations and plan assets when they occur. Amendments to IAS 32 Financial Instruments: Presentation relating to 1 January 2014 application guidance on the offsetting of financial assets and financial liabilities. IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine. 1 January 2013 Annual Improvements to IFRSs Cycle 1 January 2013 The annual improvements include the amendments to five IFRSs which have been summarized below: IFRS 1 First Time Adoption of International Financial Reporting Standards Repeated application of IFRS 1. IFRS 1 First Time Adoption of International Financial Reporting Standards Borrowing costs. IAS 1 Presentation of Financial Statements Clarification of the requirements for comparative information. IAS 16 Property, Plant and Equipment Classification of serving equipment. IAS 32 Financial Instruments: Presentation - Tax effect of the distribution to the holders of equity instruments. IAS 34 Interim Financial Reporting - Interim financial reporting and segment information for total assets and liabilities.

14 RAS AL KHAIMAH NATIONAL INSURANCE COMPANY P.S.C Adoption of new and revised International Financial Reporting Standards (IFRSs) (continued) 2.2 New and revised International Financial Reporting Standards (IFRSs) in issue but not yet effective and not early adopted (continued): New and revised IFRSs Amendments to IFRS 10, IFRS 12 and IAS 27 Guidance on Investment Entities Effective for annual periods beginning on or after 1 January 2014 On 31 October 2012, the IASB published a final standard on investment entities, which amends IFRS 10, IFRS 12, and IAS 27 and introduces the concept of an investment entity in IFRSs. The amendments establish an exception to IFRS 10 s general consolidation principle for investment entities, requiring them to measure particular subsidiaries at fair value through profit or loss, rather than consolidate them. In addition, the amendments outline required disclosures for reporting entities that meet the definition of an investment entity. *In May 2011, a package of five Standards on consolidation, joint arrangements, associates and disclosures was issued, including IFRS 10, IFRS 11, IFRS 12, IAS 27 (as revised in 2011) and IAS 28 (as revised in 2011). In June 2012, the amendments to IFRS 10, IFRS 11 and IFRS 12 were issued to clarify certain transitional guidance on the application of these IFRSs for the first time. These five standards are effective for annual periods beginning on or after 1 January Earlier application is permitted provided that all of these five standards are applied early at the same time. Management anticipates that these new standards, interpretations and amendments will be adopted in the Company s financial statements for the period beginning 1 January 2013 or as and when they are applicable and adoption of these new standards, interpretations and amendments may have no material impact on the financial statements of the Company in the period of initial application. Management anticipates that IFRS 9 will be adopted in the Company s financial statements for the annual period beginning 1 January 2015 and that the application of IFRS 9 may have significant impact on amounts reported in respect of the Company s financial assets and financial liabilities. However, it is not practicable to provide a reasonable estimate of that effect until a detailed review has been completed. 3. Significant accounting policies 3.1 Statement of compliance The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and applicable requirements of U.A.E. Federal Law No. 8 of 1984 (as amended) and U.A.E. Federal Law No. 6 of 2007 on Establishment of Insurance Authority and Organization of Its operations.

15 RAS AL KHAIMAH NATIONAL INSURANCE COMPANY P.S.C Significant accounting policies (continued) 3.2 Basis of preparation The financial statements have been prepared on the historical cost basis, except for the measurement at fair value of financial instruments that have been measured at fair value or at amortised cost. Historical cost is generally based on the fair value of the consideration given in exchange for assets. The principal accounting policies adopted are set out below. 3.3 Insurance contracts Definition The Company issues contracts that transfer insurance risk. Insurance contracts are those contracts that transfer significant insurance risk Recognition and measurement Insurance contracts are classified into two main categories, depending on the duration of risk and whether or not the terms and conditions are fixed Short term insurance contracts These contracts are casualty and property insurance contracts. Casualty insurance contracts protect the Company s customers against the risk of causing harm to third parties as a result of their legitimate activities. Damages covered include both contractual and non contractual events. Property insurance contracts mainly compensate the Company s customers for damage suffered to their properties or for the value of property lost. Customers who undertake commercial activities on their premises could also receive compensation for the loss of earnings caused by the inability to use the insured properties in their business activities (business interruption cover). Short-duration life insurance contracts protect the Company s customers from the consequences of events that would affect on the ability of the customer or customer s dependents to maintain their current level of income. Guaranteed benefits paid on occurrence of the specified insurance event are either fixed or linked to the extent of the economic loss suffered by the policyholder. There are no maturity or surrender benefits. For all these insurance contracts, premiums are recognised as revenue (earned premiums) proportionally over the period of coverage. The portion of premium received on in-force contracts that relates to unexpired risks at the reporting date is reported as the unearned premium liability. Claims and loss adjustment expenses are charged to profit or loss as incurred based on the estimated liability for compensation owed to contract holders or third parties damaged by the contract holders. They include direct and indirect claims settlement costs and arise from events that have occurred up to the reporting date even if they have not yet been reported to the Company. The Company does not discount its liabilities for unpaid claims. Liabilities for unpaid claims are estimated using the input of assessments for individual cases reported to the Company and statistical analyses for the claims incurred but not reported, and to estimate the expected ultimate cost of more complex claims that may be affected by external factors (such as court decisions).

16 RAS AL KHAIMAH NATIONAL INSURANCE COMPANY P.S.C Significant accounting policies (continued) 3.3 Insurance contracts (continued) Reinsurance contracts Contracts entered into by the Company with reinsurers under which the Company is compensated for losses on one or more contracts issued by the Company and that meet the classification requirements for insurance contracts are classified as reinsurance contracts. Contracts that do not meet these classification requirements are classified as financial assets. Insurance contracts entered into by the Company under which the contract holder is another insurer are included with insurance contracts. The benefits to which the Company is entitled under its reinsurance contracts are recognised as reinsurance contract assets. These assets consist of short-term balances due from reinsurers, as well as longer term receivables that are dependent on the expected claims and benefits arising under the related reinsured insurance contracts. Amounts recoverable from or due to reinsurers are measured consistently with the amounts associated with the reinsured insurance contracts and in accordance with the terms of each reinsurance contract. Reinsurance liabilities are primarily premiums payable for reinsurance contracts and are recognised as an expense when due. The Company assesses its reinsurance contract assets for impairment on a regular basis. If there is objective evidence that the reinsurance contract asset is impaired, the Company reduces the carrying amount of the reinsurance contract assets to its recoverable amount and recognises that impairment loss in the profit or loss. The Company gathers the objective evidence that a reinsurance asset is impaired using the same process adopted for financial assets held at amortised cost. The impairment loss is also calculated following the same method used for these financial assets Insurance contract liabilities Insurance contract liabilities towards outstanding claims are made for all claims intimated to the Company and still unpaid at the reporting date, in addition for claims incurred but not reported. The unearned premium considered in the insurance contract liabilities comprises the estimated proportion of the gross premiums written which relates to the periods of insurance subsequent to the reporting date and is maintained using the 25% and 40% method for marine and non-marine business respectively. The reinsurers portion towards the above outstanding claims, claims incurred but not reported and unearned premium is classified as reinsurance contract assets in the financial statements Policy acquisition costs Commissions and other acquisition costs that are related to securing new contracts and renewing existing contracts are charged to profit or loss when incurred Salvage and subrogation reimbursements Estimates of salvage and subrogation reimbursements are considered as an allowance in the measurement of the insurance liability for claims Liability adequacy test At the end of each reporting period, the Company assesses whether its recognised 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 cash flows, the entire deficiency is immediately recognised in profit or loss and an unexpired risk provision is created.

17 RAS AL KHAIMAH NATIONAL INSURANCE COMPANY P.S.C Significant accounting policies (continued) 3.3 Insurance contracts (continued) Receivables and payables related to insurance contracts Receivables and payables are recognised when due. These include amounts due to and from agents, brokers and insurance contract holders. If there is objective evidence that the insurance receivable is impaired, the Company reduces the carrying amount of the insurance receivable accordingly and recognises that impairment loss in profit or loss. 3.4 Revenue recognition Insurance contract income Revenue from insurance contracts is measured under revenue recognition criteria stated under insurance contracts in these financial statements (see Note above) Interest income Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the asset s net carrying amount Dividend income Dividend income from investments is recognised when the shareholders right to receive payment have been established Rental income Rental income from investment property which is leased under operating lease is recognised on an accrual basis over the term of the relevant lease. 3.5 General and administrative expenses 75% of general and administrative expenses for the year are allocated to insurance departments in proportion to each department s share of written premiums. 3.6 Government grants Land granted by the Government is recognised at a nominal value where there is reasonable assurance that land will be received and the Company will comply with any attached conditions, where applicable.

18 RAS AL KHAIMAH NATIONAL INSURANCE COMPANY P.S.C Significant accounting policies (continued) 3.7 Foreign currencies The financial statements of the Company are presented in the currency of the primary economic environment in which the Company operates (its functional currency). For the purpose of the financial statements, the results and financial position of the Company are expressed in Arab Emirates Dirhams ( ), which is the functional currency of the Company and the presentation currency for the financial statements. In preparing the financial statements of the Company, transactions in currencies other than the Company s functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences are recognised in profit or loss in the year in which they arise. 3.8 Employee benefits Defined contribution plan UAE national employees of the Company are members of the Government-managed retirement pension and social security benefit scheme pursuant to U.A.E. labour law no. 7 of The Company is required to contribute 12.5% of the contribution calculation salary of payroll costs to the retirement benefit scheme to fund the benefits. The employees and the Government contribute 5% and 2.5% of the contribution calculation salary respectively, to the scheme. The only obligation of the Company with respect to the retirement pension and social security scheme is to make the specified contributions. The contributions are charged to profit or loss Annual leave and leave passage An accrual is made for the estimated liability for employees'entitlement to annual leave and leave passage as a result of services rendered by eligible employees up to the end of the year Provision for employees end of service indemnity Provision is also made for the full amount of end of service indemnity due to non-uae national employees in accordance with the UAE Labour Law and is based on current remuneration and their period of service at the end of the reporting period. The accrual relating to annual leave and leave passage is disclosed as a current liability, while the provision relating to end of service indemnity is disclosed as a non-current liability.

19 RAS AL KHAIMAH NATIONAL INSURANCE COMPANY P.S.C Significant accounting policies (continued) 3.9 Property and equipment Property and equipment are carried at cost less accumulated depreciation and any identified impairment losses. Depreciation is charged so as to write off the cost of assets, over their estimated useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis. The gain or loss arising on the disposal or retirement of an item of property and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss Investment properties Investment properties are accounted under the cost model of IAS 40. Investment properties are stated at cost less accumulated depreciation and any identified impairment loss. Depreciation is charged so as to write off the cost of investment properties, other than land, over the estimated useful lives of 25 years, using the straight-line method Impairment of tangible assets At the end of each reporting period, the Company reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

20 RAS AL KHAIMAH NATIONAL INSURANCE COMPANY P.S.C Significant accounting policies (continued) 3.12 Provisions Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows Investment in associate An associate is an entity over which the Company has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Under the equity method, an investment in an associate is initially recognised in the statement of financial position at cost and adjusted thereafter to recognise the Company's share of the profit or loss and other comprehensive income of the associate. When the Company's share of losses of an associate exceeds the Company's interest in that associate (which includes any long-term interests that, in substance, form part of the Company's net investment in the associate), the Company discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Company has incurred legal or constructive obligations or made payments on behalf of the associate. Any excess of the cost of acquisition over the Company s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment. Any excess of the Company s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss. The requirements of IAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Company s investment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases.

21 RAS AL KHAIMAH NATIONAL INSURANCE COMPANY P.S.C Significant accounting policies (continued) 3.14 Financial assets All financial assets are recognised and derecognised on trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value. Financial assets of the Company are classified into the following specified categories: cash and cash equivalents, financial assets at fair value through profit or loss (FVTPL), available-for-sale (AFS) financial assets and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period to the net carrying amount on initial recognition Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value Financial assets at FVTPL Financial assets are classified as at FVTPL when the financial asset is either held for trading or it is designated as at FVTPL. A financial asset is classified as held for trading if: o it has been acquired principally for the purpose of selling it in the near term; or o on initial recognition, it is part of a portfolio of identified financial instruments that the Company manages together and has a recent actual pattern of short-term profit-taking; or o it is a derivative that is not designated and effective as a hedging instrument. A financial asset other than a financial asset held for trading may be designated as at FVTPL upon initial recognition if: o such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or o the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Company's documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or o it forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at FVTPL.

22 RAS AL KHAIMAH NATIONAL INSURANCE COMPANY P.S.C Significant accounting policies (continued) 3.14 Financial assets (continued) Financial assets at FVTPL (continued) Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset and is included in the investment and other income line item in the income statement. Fair value is determined in the manner described in note Available-for-sale (AFS) financial assets Listed shares held by the Company that are traded in an active market are classified as being available-forsale financial assets and are stated at fair value. The Company also has investments in unlisted shares that are not traded in an active market but are also classified as AFS financial assets and stated at fair value because Management considers that fair value can be reliably measured. Fair value is determined in the manner described in note 29. Gains and losses arising from changes in fair values are recognised in other comprehensive income and accumulated in the cumulative changes in fair values of securities with the exception of impairment losses, which are recognised in profit or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the cumulative changes in fair value of securities is reclassified to profit or loss Loans and receivables Insurance and other receivables that have fixed or determinable payments that are not quoted in an active market and statutory deposits are classified as loans and receivables. Loans and receivables are initially measured at fair value, plus transaction costs and subsequently measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial Impairment of financial assets Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the asset have been affected. For listed and unlisted equity investments classified as AFS, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment. For certain categories of financial asset, such as insurance receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Company s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 90 days, as well as observable changes in national or local economic conditions that correlate with default on receivables. For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the financial asset s original effective interest rate.

23 RAS AL KHAIMAH NATIONAL INSURANCE COMPANY P.S.C Significant accounting policies (continued) 3.14 Financial assets (continued) Impairment of financial assets (continued) The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of insurance receivables, where the carrying amount is reduced through the use of an allowance account. When an insurance receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. When an AFS financial asset is considered to be impaired, cumulative gains or losses previously recognised in other comprehensive income are reclassified to profit or loss. With the exception of AFS equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the financial asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. In respect of AFS equity securities, impairment losses previously recognised in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognised in other comprehensive income Derecognition of financial assets The Company derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Company recognises its retained interest in the asset and an associated liability for amounts it may have to pay Financial liabilities and equity instruments issued by the Company Classification as debt or equity Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

24 RAS AL KHAIMAH NATIONAL INSURANCE COMPANY P.S.C Significant accounting policies (continued) 3.15 Financial liabilities and equity instruments issued by the Company (continued) Financial liabilities Financial liabilities are classified as either financial liabilities at FVTPL or other financial liabilities Other financial liabilities Insurance and other payables are classified as other financial liabilities and are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis, except for short term payable when the recognition of interest would be immaterial. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period to the net carrying amount on initial recognition Derecognition of financial liabilities The Company derecognises financial liabilities when, and only when, the Company s obligations are discharged, cancelled or they expire Dividend distribution Dividend distribution to the Company s shareholders is recognised as a liability in the Company s financial statements in the period in which the dividends are approved by the Company s shareholders. 4. Critical accounting judgements and key sources of estimation uncertainty In the application of the Company s accounting policies, which are described in Note 3 to these financial statements, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

25 RAS AL KHAIMAH NATIONAL INSURANCE COMPANY P.S.C Critical accounting judgements and key sources of estimation uncertainty (continued) 4.1 Critical accounting judgements In the process of applying Company s accounting policies, management is of the opinion that there is no instance of application of judgments which is expected to have a significant effect on the amounts recognised in the financial statements, apart from those involving estimations described below Classification of investments Management decides on acquisition of an investment whether it should be classified as FVTPL or availablefor-sale. The Company classifies investments as FVTPL if they are acquired primarily for the purpose of making a short term profit by the dealers. Other investments are classified as available-for-sale Impairment of available-for-sale equity investments The Company determines that available-for-sale equity investments are impaired when there has been a significant or prolonged decline in the fair value below its cost. This determination of what is significant or prolonged requires judgement. In making this judgement, the Company evaluates among other factors, the normal volatility in share price. In addition, impairment may be appropriate when there is evidence of deterioration in the financial health of the investee, industry and sector performance, changes in technology, and operational and financing cash flows. Management has considered an amount of 533,707 (2011: 3,717,123) as impairment loss on available-for-sale investments for the year, based on the analysis of impairment test performed on availablefor-sale investments. 4.2 Key sources of estimation uncertainty The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year The ultimate liability arising from claims made under insurance contracts The estimation of ultimate liability arising from the claims made under insurance contracts is the Company s most critical accounting estimate. There are sources of uncertainty that need to be considered in the estimate of the liability that the Company will eventually pay for such claims. Estimates have to be made both for the expected ultimate cost of claims reported at the end of each reporting period and for the expected ultimate cost of claims incurred but not reported ( IBNR ) at the end of each reporting period. Liabilities for unpaid reported claims are estimated using the input of assessments for individual cases reported to the Company and management estimates based on past claims settlement trends for the claims incurred but not reported. At the end of each reporting period, prior year claims estimates are reassessed for adequacy and changes are made to the provision.