INTERIM CONDENSED FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS REVIEW REPORT FOR THE THREE-MONTH PERIOD ENDED 31 MARCH 2017
INTERIM CONDENSED FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS REVIEW REPORT FOR THE THREE-MONTH PERIOD ENDED 31 MARCH 2017 INDEX PAGE Independent Auditors Review Report 1 Interim Statement of Financial Position 2 3 Interim Statement of Insurance Operations and Accumulated Surplus 4 Interim Statement of Shareholders Operations 5 Interim Statement of Shareholders Comprehensive Income 6 Interim Statement of Changes in Shareholders Equity 7 Interim Statement of Insurance Operations Cash flows 8 Interim Statement of Shareholders Operations Cash flows 9 Notes to the Interim Condensed Financial Statements 10 19
AI-Bassam & AI-Nemer Allied Accountants (A momber firm ofpkf l.-emational) P.O. Box 15651 Jeddah - 21454 AHMED TAYSEER IBRAHIM & CO. CHARTERED ACCOUNTANTS (RegistrltiOD No. 640) INDEPENDENTAUDITORS' REVIEW REPORT ON INTERIM CONDENSEDFINANCIAL STATEMENTS TO THE SHAREHOLDERSOF ALLIED COOPERATIVE INSURANCE GROUP (ACIG) (A SAUDI JOINT STOCK COMPANy) INTRODUCTION We have reviewed the accompanying interim statement of financial position of Allied Cooperative Insuranc Group (ACIG) (A Saudi Joint Stock Company) (the "Company") as at 31 March 2017 and the related interim state ents of insurance operations and accumulated surplus, shareholders' operations, comprehensive income, cha ges in shareholders' equity, insurance operations' cash flows and shareholders' operations cash flows for the thre month period then ended and the notes from 1 to 17 which form an integral part of these interim condensed nancial statements. Management is responsible for the preparation and fair presentation of these interim condensed Inancial statements in accordance with International Accounting Standard 34 - "Interim Financial Reporting" (IAS 34) a d Saudi Arabian Monetary Authority ("SAMA") guidance on accounting for Zakat and Tax. Our responsibility is to e press a conclusion on these interim condensed financial statements based on our review. SCOPE OF REVIEW We conducted our review in accordance with International Standard on Review Engagement 2410, "Review 0 Interim Financial Information Performed by the Independent Auditor of the Entity". A review of these Interim condensed tnancial statements consists of making inquiries, primarily of persons responsible for financial and accounting matt rs and applying analytical and other review procedures. A review is substantially less in scope than an audit cond cted in accordance with International Standards on Auditing and consequently, it does not enable us to obtain assura ce that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not ex ress an audit opinion. CONCLUSION Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed financial statements is not prepared, in all material respects, in accordance with International A unting Standard 34 - "Interim Financial Reporting" (IAS 34) and SAMA guidance on accounting for Zakat and Tax. Ahmed Tayseer Ibrahim & Co. Chartered ntants Ahmed Tayseer Ibrahim Certified Public Accountant Licence No. 213 8 May 2017 12 Sha'baan 1438H Jeddah, Kingdomof SaudiArabia
NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS FOR THE THREE-MONTH PERIOD ENDED 31 MARCH 2017-UNAUDITED - (continued) 1. ORGANIZATION AND PRINCIPAL ACTIVITIES Allied Cooperative Insurance Group ( the Company ) is a Saudi Joint Stock Company registered in the Kingdom of Saudi Arabia under Commercial Registration No. 4030171999 dated 9 Shabaan 1428H, corresponding to 22 August 2007. Registered Office address of the Company was Al Ruwais District, P. O. Box 7076, Jeddah 21462, Kingdom of Saudi Arabia. As per the shareholders resolution dated 13 May 2014, the registered office address of the Company has changed from Jeddah to Al Malka District P.O. Box 40523 Riyadh 11511, Kingdom of Saudi Arabia. The legal formalities to change the registered office address of the Company have been completed during the year 2014 and accordingly new Commercial Registration No. 1010417178 has been obtained and Articles of Association has been amended. The activities of the Company are to transact cooperative insurance operations and related activities in the Kingdom of Saudi Arabia. On 4 April 2009, the Company received license from the Saudi Arabian Monetary Authority ( SAMA ) to engage in insurance in Saudi Arabia. The Company commenced its commercial operations on 1 July 2009. The company was listed on the Saudi Stock Exchange (Tadawul) on 27 August 2007. 2. BASIS OF PREPARATION Statement of Compliance These interim condensed financial statements of the Company have been prepared in accordance with International Accounting Standard 34 - Interim Financial Reporting (IAS 34) and Saudi Arabian Monetary Authority ( SAMA ) guidance on accounting for Zakat and Tax. These interim condensed financial statements for the three-month period ended 31 March 2017 should be read in conjunction with the Company s audited financial statements as at 31 December 2016. In the Company s Board of Directors opinion, the interim condensed financial statements reflect all adjustments (which include normal recurring adjustments) necessary to present fairly the results of operations for the interim period presented. The Company follows a fiscal year ending 31 December. The interim condensed financial statements are expressed in Saudi Riyals, being the functional currency of the Company and have been rounded off to the nearest thousand, unless otherwise specified. The preparation of interim condensed financial statements in conformity with International Financial Reporting Standards ( IFRS ) requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the interim condensed financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates and judgments are based on management s best knowledge of current events and actions, actual results ultimately may differ from those estimates. The interim condensed financial statements do not contain all information and disclosures required for full financial statements prepared in accordance with International Financial Reporting Standards. Basis of presentation As required by Saudi Arabian insurance regulations, the Company maintains separate accounts for Insurance Operations and Shareholders Operations. Assets, liabilities, income and expenses clearly attributable to either activity are recorded in the respective accounts. The basis of allocation of expenses of joint operations is determined by the management and approved by the Board of Directors. As per the by-laws of the Company, surplus arising from the Insurance Operations is distributed as follows: Transfer to Shareholders operations 90% Transfer to Policyholders operations 10% 100% In case of deficit, the whole deficit will be transferred to Shareholders operations. 10
NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS FOR THE THREE-MONTH PERIOD ENDED 31 MARCH 2017-UNAUDITED - (continued) 2. BASIS OF PREPARATION (continued) New IFRS, International Financial Reporting and Interpretations Committee s interpretations (IFRIC) and amendments thereof, adopted by the Company The Company has adopted the following amendments and revisions to existing standards, which were issued by the International Accounting Standards Board (IASB): Standard/ Interpretation Description IFRS 12 The amendments clarify that the disclosure requirements in IFRS 12, other than those in paragraphs B10 B16, apply to an entity s interest in a subsidiary, a joint venture or an associate (or a portion of its interest in a joint venture or an associate) that is classified (or included in a disposal group that is classified) as held for sale. This did not have any impact on the interim condensed financial statements of the Company as there is no investment in subsidiary, a joint venture or an associate. IAS 7 Amendments to IAS 7 Statement of Cash flows: Diclosure Initiative, The amendments require entities to provide disclosures about changes in their liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes (such as foreign exchange gains or losses). On initial application of the amendment, entities are not required to provide comparative information for preceding periods. The Company is not required to provide additional disclosures in its interim condensed financial statements, but will disclose additional information in its annual financial statements for the year ending 31 December 2017. The adoption of the relevant new and amended standards and interpretations applicable to the Company did not have any significant impact on these interim condensed financial statements. Standards issued but not yet effective Standards issued but not yet effective up to the date of issuance of the Company financial statements are listed below. The listing is of standards and interpretations issued, which the Company reasonably expects to be applicable at a future date. The Company intends to adopt these standards when they are effective. Standard/ Interpretation Description Effective date IFRS 9 Financial Instruments 1 January 2018 IFRS 15 Revenue from Contracts with Customers 1 January 2018 IFRS 2 Amendments to IFRS 2 Classification and Measurement of share-based Payment 1 January 2018 transactions. IAS 40 Amendments to IAS 40 Transfers of investment property. 1 January 2018 IFRIC 22 Foreign Currency Transactions and Advance consideration. 1 January 2018 IFRS 1 and IAS 28 Annual Improvements 2016 to IFRS 2014-2016 cycle. 1 January 2018 IFRS 16 Leases 1 January 2019 The Company is currently assessing the implications of adopting the above mentioned standards, amendments or interpretations on the Company s financial statements. 11
NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS FOR THE THREE-MONTH PERIOD ENDED 31 MARCH 2017-UNAUDITED - (continued) 3. CASH AND CASH EQUIVALENTS 31 March 2017 (Unaudited) 31 December 2016 (Audited) Insurance operations Cash in hand and at banks 27,263 36,381 Short term deposit 144,403 168,119 171,666 204,500 Shareholders operations Cash in hand and at banks 7,913 15,168 Short term deposit 50,165 39,868 58,078 55,036 Cash at banks are placed with counterparties who have good credit ratings. The carrying amounts disclosed above reasonably approximate fair value at the statement of interim condensed financial position date 4. PREMIUMS RECEIVABLE, NET 31 March 2017 (Unaudited) 31 December 2016 (Audited) Due from policyholders 91,356 95,804 Due from policyholders - related parties 200 71 Provision for doubtful debt (5,001) (6,214) 86,555 89,661 Movement in provision for doubtful debts is as follows: 31 March 2017 (Unaudited) 31 December 2016 (Audited) Balance at the beginning of the period / year 6,214 2,622 Release of provision during the period / year (1,213) - Additional provision during the period / year - 3,592 Balance at the end of the period / year 5,001 6,214 5. AVAILABLE-FOR-SALE INVESTMENTS Shareholders operations - 31 March 2017 (Unaudited) ) 31 December 2016 (Audited) Investment in sukuk 25,000 25,000 Quoted securities 21,198 20,759 Unquoted securities 1,923 1,923 48,121 47,682 12
NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS FOR THE THREE-MONTH PERIOD ENDED 31 MARCH 2017-UNAUDITED - (continued) 5. AVAILABLE-FOR-SALE INVESTMENTS (Continued) As at 31 March 2017 (Unaudited) Balance at the beginning of the period Net movement during the period Change in fair value for the period Balance at the end of the period Investment in Najm for Insurance Services Company 1,923 - - 1,923 Investment in sukuk 25,000 - - 25,000 Quoted securities 20,759 1,792 (1,353) 21,198 47,682 1,792 (1,353) 48,121 Balance at the beginning of the year Net movement during the year Change in fair value for the year Balance at the end of the year As at 31 December 2016 (Audited) Investment in Najm for Insurance Services Company 1,923 - - 1,923 Investment in mutual funds 19,361 (19,632) 271 - Investment in sukuk 26,503 (2,105) 602 25,000 Quoted securities 17,655 2,471 633 20,759 65,442 (19,266) 1,506 47,682 Investment in Najm for Insurance Services Company is classified under level 3. Investments in mutual funds and GACA Sukuk are classified under level 2. The unrealised loss of SR 1.353 million for the three-month period ended 31 March 2017 (31 March 2016: unrealised loss SR 1.702 million) was charged to the interim statement of changes in shareholders' equity as available-for-sale investments reserve. The available-for-sale investments reserve as of 31 March 2017 is SR 2.406 million (31 December 2016: SR 1.053 million). 6. STATUTORY DEPOSIT 31 March 2017 31 December 2016 (Unaudited) (Audited) Shareholders Operations Statutory deposit 20,000 20,000 As required by Saudi Arabian Insurance Regulations, the Company deposited 10% of its paid up capital, amounting to SR 20 million in a bank designated by the Saudi Arabian Monetary Authority (SAMA). The Company cannot withdraw this deposit without SAMA s approval. 7. UNEARNED PREMIUMS, NET 31 March 2017 (Unaudited) 31 December 2016 (Audited) Unearned premiums 197,401 232,296 Reinsurance share of unearned premiums (32,473) (35,120) 164,928 197,176 13
NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS FOR THE THREE-MONTH PERIOD ENDED 31 MARCH 2017-UNAUDITED - (continued) 8. OUTSTANDING CLAIMS, NET 31 March 2017 (Unaudited) 31 December 2016 (Audited) Gross outstanding claims 29,641 24,450 Add: Incurred but not reported (IBNR) reserve 92,480 104,970 Outstanding claims 122,121 129,420 Reinsurance share of outstanding claims (43,574) (43,224) Outstanding claims, net 78,547 86,196 9. ZAKAT AND INCOME TAX Zakat and Income Tax The Zakat and income tax payable by the Company has been calculated based on the best estimates of the management. The movement in the Zakat payable is as follows: 31 March 2017 (Unaudited) 31 December 2016 (Audited) Balance at the beginning of the period / year 1,493 748 Charge for the period / year 403 1,641 Paid during the period / year - (896) Balance at the end of the period / year 1,896 1,493 The movement in the Income tax payable is as follows: 31 March 2017 (Unaudited) 31 December 2016 (Audited) Balance at the beginning of the period / year 17 - Charge for the period / year 4 17 Balance at the end of the period / year 21 17 The differences between the financial and the zakatable results are mainly due to certain adjustments in accordance with the relevant fiscal regulations. Zakat base has been computed based on the Company s understanding of the zakat regulations enforced in the Kingdom of Saudi Arabia. The zakat regulations in Saudi Arabia are subject to different interpretations, and the assessments to be raised by the GAZT could be different from the declarations filed by the Company. Income Tax Foreign shareholder, being Islamic Development Bank (IDB) is exempted from income tax. 14
NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS FOR THE THREE-MONTH PERIOD ENDED 31 MARCH 2017-UNAUDITED - (continued) 9. ZAKAT AND INCOME (Continued) Status of assessment: Zakat and income tax returns have been filed with the General Authority of Zakat and Tax ( GAZT ) for the years ended up to 31 December 2015. Final certificate has been received from GAZT for the year ended 31 December 2008. However, GAZT has raised an additional assessment in respect of the returns filed for the years ended 31 December 2008, 2009 and 2010 amounting to SR 1.86 million which has not been booked in the interim condensed financial statements. The major difference of the additional assessment relates to disallowance of a portion of pre-incorporation expenses and withholding tax. The Company has filed an objection against this additional assessment with the Preliminary Tax Objection Committee subsequent to the year end, an adverse decision was received from the Preliminary Tax Objection Committee, upon which the Company the appeal with the Higher Objection Committee. The high appeal committee issued its decision in favour of the Company with respect to Zakat and rejected the appeal related to withholding tax. The Company is in the process of reforming the matter to the board of grievance. In this regard, the Company have issued a letter of guarantee amounting to SR 1.83 million in favour of GAZT (See Note 15). 10. SHARE CAPITAL The authorized, issued and paid up share capital of the Company is SR 200 million at period end consisting of 20 million shares of SR 10 each. 31 March 2017 31 December 2016 (Unaudited) (Audited) % holding % holding Founding shareholders 40 80,000 40 80,000 General public 60 120,000 60 120,000 Balance at the end of the period / year 100 200,000 100 200,000 11. BASIC AND DILUTED EARNINGS PER SHARE Earnings per share for the period has been calculated by dividing the net income for the period by the weighted average number of issued and outstanding shares for the period. 12. STATUTORY RESERVE As required by Saudi Arabian Insurance Regulations, 20% of the net shareholders income shall be set aside as a statutory reserve until this reserve amounts to 100% of paid capital. No appropriation has been made as the Company has accumulated losses at the end of the period. 15
NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS FOR THE THREE-MONTH PERIOD ENDED 31 MARCH 2017-UNAUDITED - (continued) 13. TRANSACTIONS WITH RELATED PARTIES Major related party transactions during the period and the related balances at the end of the period / year are as follows: Insurance operations Related party Nature of transaction Amount of transactions Three-month period ended Closing balance Receivable / (Payable) 31 March 2017 31 March 2016 31 March 2017 31 December 2016 (Unaudited) (Unaudited) (Unaudited) (Audited) Affiliates Premiums written 4 165 74 149 Claims paid 33 84 (200) (313) Board and audit committee Meetings fee 153 118 - - Key management personnel Short term benefits 1,254 1,254 53 70 Long term benefits 110 57 1,497 (1,024) 16
NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS FOR THE THREE-MONTH PERIOD ENDED 31 MARCH 2017-UNAUDITED - (continued) 14. SEGMENTAL INFORMATION Consistent with the Company s internal reporting process, operating segments have been approved by the Management in respect of the Company s activities, assets and liabilities as stated below. Segment results do not include general and administrative expenses, provision for doubtful debts and other income. Segment assets do not include cash and cash equivalents, investments, prepayments and other receivables, and property and equipment, net. Segment liabilities do not include reinsurance payables, accrued expenses and other liabilities, due to shareholders operations and employees terminal benefits. Operating segments For three-month period ended 31 March 2017 (Unaudited) Motor Medical General accident Others Total Revenue SR 000 SR 000 SR 000 SR 000 SR 000 Gross premiums written 46,431 24,396 7,038 3,908 81,773 Less: Premiums ceded (106) (6,597) (3,091) (3,749) (13,543) Excess of loss premiums (850) - (156) (95) (1,101) Net written premiums 45,475 17,799 3,791 64 67,129 Changes in net unearned premiums 16,471 17,091 (1,318) 4 32,248 Net premiums earned 61,946 34,890 2,473 68 99,377 Other underwriting Income 1,623 - - - 1,623 Reinsurance commission earned 5-354 457 816 Net revenues 63,574 34,890 2,827 525 101,816 Cost and expenses Gross claims paid 61,839 25,642 70 3 87,554 Less: Reinsurers share - (8,004) (23) (3) (8,030) Net claims paid 61,839 17,638 47-79,524 Changes in outstanding claims, net (8,185) 414 122 - (7,649) Net claims incurred 53,654 18,052 169-71,875 Policy acquisition cost 5,247 3,525 274 126 9,172 Other underwriting expense 243 691 - - 934 Net cost and expenses 59,144 22,268 443 126 81,981 Net result of insurance operations 4,430 12,622 2,384 399 19,835 General and administrative expenses (16,206) Supervision and inspection fee (314) (225) (26) (20) (585) CCHI fee - (448) - - (448) Release of provision for doubtful debts 1,213 Investment income 566 Other income 41 Surplus from insurance operations 4,416 17
NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS FOR THE THREE-MONTH PERIOD ENDED 31 MARCH 2017-UNAUDITED - (continued) 14. SEGMENTAL INFORMATION (Continued) For Three-month period ended General As at 31 March 2017 (Unaudited) Motor Medical accident Others Total SR 000 SR 000 SR 000 SR 000 SR 000 Premiums and reinsurance receivables net 25,972 31,107 2,006 27,771 86,856 Reinsurance share of unearned premiums 97 14,123 3,245 15,008 32,473 Reinsurance share of outstanding claims 1,100 7,682 2,906 31,886 43,574 Deferred policy acquisition cost 8,197 4,801 1,266 166 14,430 Unallocated assets 205,776 Total insurance operations assets 383,109 Unearned commission income 17-412 270 699 Unearned premiums 99,764 63,063 19,316 15,258 197,401 Outstanding claims 61,122 22,760 6,031 32,208 122,121 Other liabilities 46,675 Unallocated liabilities 16,213 Total insurance operations liabilities 383,109 For Three-month period ended 31 March 2016 (Unaudited) Motor Medical General accident Others Total Revenue SR 000 SR 000 SR 000 SR 000 SR 000 Gross premiums written 93,717 44,052 5,481 4,024 147,274 Less: Premiums ceded - (9,834) (1,980) (3,466) (15,280) Excess of loss premiums (1,407) - (115) (99) (1,621) Net written premiums 92,310 34,218 3,386 459 130,373 Changes in net unearned premiums (16,821) (5,242) (1,158) 52 (23,169) Net premiums earned 75,489 28,976 2,228 511 107,204 Other underwriting Income 3,047 - - - 3,047 Reinsurance commission earned 3-287 717 1,007 Net revenues 78,539 28,976 2,515 1,228 111,258 Cost and expenses Gross claims paid 70,348 19,357 131 461 90,297 Less: Reinsurers share (388) (6,733) (47) (226) (7,394) Net claims paid 69,960 12,624 84 235 82,903 Changes in outstanding claims, net 657 (160) 833 73 1,403 Net claims incurred 70,617 12,464 917 308 84,306 Policy acquisition cost (1,521) - - - (1,521) Other underwriting expense 220 346 - - 566 Net cost and expenses 6,273 3,055 290 177 9,795 75,589 15,865 1,207 485 93,146 Net result of insurance operations 2,950 13,111 1,308 743 18,112 General and administrative expenses (15,075) Supervision and inspection fee (385) (193) (21) (30) (629) CCHI fee - (386) - - (386) Provision for doubtful debts (67) Investment income 844 Other income 1,701 Surplus from insurance operations 4,500 18
NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS FOR THE THREE-MONTH PERIOD ENDED 31 MARCH 2017-UNAUDITED - (continued) 14. SEGMENTAL INFORMATION (Continued) As at 31 December 2016 (Audited) General Motor Medical accident Others Total SR 000 SR 000 SR 000 SR 000 SR 000 Premiums and reinsurance receivables net 26,164 33,714 1,839 32,683 94,400 Reinsurance share of unearned premiums 30 17,396 2,653 15,041 35,120 Reinsurance share of outstanding claims 1,100 7,572 2,870 31,682 43,224 Deferred policy acquisition cost 4,788 11,410 1,149 185 17,532 Unallocated assets 241,438 Total insurance operations assets 431,714 Unearned commission income 1-344 299 644 Unearned premiums 116,168 83,428 17,405 15,295 232,296 Outstanding claims 69,307 22,237 5,872 32,004 129,420 Other liabilities - - - 56,290 Unallocated liabilities 13,064 Total insurance operations liabilities 431,714 15. CONTINGENT LIABILITY As at 31 March 2017, the Company has a letter of guarantee amounting to SR 1.83 million (31 December 2016: SR 1.83 million) in favor of GAZT (See Note 9). A margin of SR 1.83 million (31 December 2016: SR 1.83 million) being deposited with a bank for this purpose is included in prepayments and other receivables in the interim statement of financial position of insurance operations. 16. COMPARATIVE FIGURES Certain of the prior year amounts have been reclassified to conform to the presentation in the current year. 17. APPROVAL OF INTERIM CONDENSED FINANCIAL STATEMENTS These interim condensed financial statements have been approved by the board of directors on 25 April 2017 corresponding to 28 Rajab 1438H. 19