ABU DHABI NATIONAL TAKAFUL COMPANY P.S.C. Reports and financial statements for the year ended 31 December 2005
ABU DHABI NATIONAL TAKAFUL COMPANY P.S.C. Reports and financial statements for the year ended 31 December 2005 Pages Board of Directors 1 Board of Directors 2005 annual report 2-3 Independent auditor s report 4 Balance sheet 5 Income statement 6 Statement of changes in equity 7 Statement of cash flows 8 9-24
ABU DHABI NATIONAL TAKAFUL COMPANY P.S.C. 1 BOARD OF DIRECTORS Chairman H.E. Hamad Mohammed Bin Brook Deputy Chairman Mr. Mubarak Mattar Al Hemiri Directors Mr. Mohammed Juma Al Qubaisi Mr. Rashed Sultan Al Dhahiri Mr. Ghanim Al Mansouri Mr. Abdul Aziz Ahmed Al Mehairi Mr. Ahmed Saif Al Darmaki General Manager Mr. Oussama Kaissi Sharia a Supervisory Board Dr. Abdul Sattar Abu Ghuddah Sheikh Nizam Yaqubi Shiekh Osaid Kailani Auditors Deloitte & Touche
ABU DHABI NATIONAL TAKAFUL COMPANY P.S.C. 2 BOARD OF DIRECTORS 2005 ANNUAL REPORT Dear Shareholders, Peace be upon you.. It is our pleasure to welcome you and present to you the company s second annual report in addition to the audited financials for the year ending 31 st December 2005. The United Arab Emirates economy has benefited in the year 2005, from the rise in the oil prices. The real economic growth reach 5.6%, this growth also spilled over all rectors of the economy and in specific the real estate sector that benefited greatly from the liquidity caused by the rise in the oil prices. Similarly, the growth was enhanced because of the strong demand on commodities and services due greatly to the increase in wages for the public sectors and some private entities. As for the insurance sector, the year 2005 was a phenomenal year due to the growth in the construction activities and profits realized from the local stock market. There has been as well, a 15% growth in written contributions in comparison to the year 2004, due to the continuing presence of mega construction projects and increased demand for personal lines insurance, mainly the family takaful and medical. The market continued to witness stiff competition amongst all companies which led to lower technical rates. This dangerous sign was ignited due to the unprecedented profits made by the companies from investment in stocks and properties. As for the Retakaful, the company successfully renewed its programmes while securing better terms and additional capacity for all lines of business, that was mainly due to the company good performance on the technical side. The company was also able to achieve great results for its second year of operations. The gross written contributions amounted to 53,630,151, the net underwriting income amounted to 4,651,426. Investment income amounted to 29,740,869. Net profit realized for the year ending 31/12/2005 amounted to 23,961,023 after the deduction of all the expenses.
ABU DHABI NATIONAL TAKAFUL COMPANY P.S.C. 3 BOARD OF DIRECTORS 2005 ANNUAL REPORT (continued) Dear Shareholders, With the grace of Allah Almighty, your company is progressing on solid ground. The Board of Directors would like to express their gratitude and appreciation for his highness Sheikh Khalifa Bin Zayed Al Nahyan, President of the United Arab Emirates and His Highness Sheikh Mohammad Bin Zayed Al Nahyan, Crown Prince of Abu Dhabi, Deputy Supreme Commander of the UAE Armed Forces, for their continuous support to the financial industry. We also thank the Ministry of Economy & Trade for their continuous support and cooperation. We thank the Shari a supervisory Board for their guidance and contribution, we also express our thanks to the management and employees of the company for their devotion and endeavors to serve the purpose and achieve our corporate goals and objectives. We extend our gratitude and thanks to all our shareholders and other stakeholders inside and outside the United Arab Emirates for their continuous support and trust in Abu Dhabi National Takaful. Hamad Bin Brook Chairman 5 February 2006
INDEPENDENT AUDITOR S REPORT 4 To the Shareholders Abu Dhabi National Takaful Company P.S.C. Abu Dhabi, UAE We have audited the accompanying balance sheet of Abu Dhabi National Takaful Company P.S.C. as of 31 December 2005 and the related statements of income, changes in equity and cash flows for the year ended 31 December 2005 as set out on pages 5 to 24. These financial statements are the responsibility of the Company s management. 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 plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Abu Dhabi National Takaful Company P.S.C. as of 31 December 2005 and the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards and comply with the requirements of the UAE Federal Law number (9) of 1984 (as amended) concerning Insurance Companies and Agents. Also, in our opinion, proper books of account are maintained by the Company, the information included in the Directors report in respect of the financial statements are in agreement with the accounting records of the Company. We obtained all the information and explanations which we considered necessary for our audit. According to the information available to us, there were no contraventions, during the financial period, of the UAE Federal Commercial Companies Law number (8) of 1984 (as amended) or the Company s Memorandum and Articles of Association which might have materially affected the activities of the Company or its financial position. Ahmad Nimer Registration No. 380 Abu Dhabi, United Arab Emirates 5 February 2006
ABU DHABI NATIONAL TAKAFUL COMPANY P.S.C. 5 Balance sheet as at 31 December 2005 ASSETS Notes 2005 2004 Cash and cash equivalents 140,641,850 42,132,489 Statutory deposit 3 7,500,000 7,500,000 Available for sale investments 4 39,954,386 3,487,057 Retakaful contract assets 5 20,231,248 4,059,028 Takaful and other receivables 7 18,075,146 14,057,233 Prepayments 492,806 658,640 Furniture and equipment 8 1,578,077 831,805 Total assets 228,473,513 72,726,252 EQUITY AND LIABILITIES Capital and reserves Share capital 9 60,000,000 60,000,000 Legal reserve 10 2,418,226 22,124 General reserve 11,200,000 - Investment revaluation reserve 17,654,997 (29,857) Accumulated profits 6,364,033 199,112 Proposed dividend 11 3,000,000 - Total capital and reserves 100,637,256 60,191,379 Liabilities Provision for end-of-service benefits 415,884 128,325 Takaful contract liabilities 5 40,594,516 7,020,490 Retakaful and other payables 12 81,327,461 3,547,465 Retakaful deposit retained 5,498,396 1,838,593 Total liabilities 127,836,257 12,534,873 Total equity and liabilities 228,473,513 72,726,252... Chairman of the Board. General Manager The accompanying notes form an integral part of these financial statements.
ABU DHABI NATIONAL TAKAFUL COMPANY P.S.C. 6 Income statement for the year ended 31 December 2005 Notes Year ended 31 December 2005 Period from 16 November 2003 (inception date) to 31 December 2004 Gross takaful contributions revenue 13 27,715,944 8,264,814 Retakaful contributions ceded 13 (14,866,308) (4,800,316) Net earned contributions 13 12,849,636 3,464,498 Gross claims incurred (17,041,782) (3,550,917) Retakaful share of claims incurred 8,746,574 2,411,130 Net claims incurred (8,295,208) (1,139,787) Takaful income 4,554,428 2,324,711 Takaful expenses (2,657,305) (926,764) Retakaful and other income 2,754,303 1,072,028 Takaful operating profit 4,651,426 2,469,975 General and administrative expenses 14 (10,599,342) (5,524,792) Pre-operational expenses - (1,877,849) Investment and other income 15 29,908,939 3,953,902 Subscription fees - 1,200,000 Net profit for the year/period 23,961,023 221,236 Basic earnings per share 16 0.40 0.004 The accompanying notes form an integral part of these financial statements.
ABU DHABI NATIONAL TAKAFUL COMPANY P.S.C. 7 Statement of changes in equity for the year ended 31 December 2005 Share capital Legal reserve General reserve Investment revaluation reserve Accumulated profits Proposed dividends Total Balance at 16 November 2003 60,000,000 - - - - - 60,000,000 Net profit for the period - - - - 221,236-221,236 Transfer to legal reserve (note 10) - 22,124 - - (22,124) - - Decrease in fair value of available for sale investments (note 4) - - - (29,857) - - (29,857) Balance at 1 January 2005 60,000,000 22,124 - (29,857) 199,112-60,191,379 Net profit for the year - - - - 23,961,023-23,961,023 Transfer to legal reserve (note 10) - 2,396,102 - - (2,396,102) - - Transfer to General Reserve - - 11,200,000 - (11,200,000) - - Directors Fee - - - - (1,200,000) - (1,200,000) Increase in fair value of available for sale investments (note 4) - - - 17,684,854 - - 17,684,854 Proposed dividends - - - - (3,000,000) 3,000,000 - Balance at 31 December 2005 60,000,000 2,418,226 11,200,000 17,654,997 6,364,033 3,000,000 100,637,256 The accompanying notes form an integral part of these financial statements.
ABU DHABI NATIONAL TAKAFUL COMPANY P.S.C. 8 Statement of cash flows for the year ended 31 December 2005 Year ended 31 December 2005 Period from 16 November 2003 (inception date) to 31 December 2004 Operating activities Net profit for the year/period 23,961,023 221,236 Adjustments for: Retakaful contract assets and takaful contract liabilities, net 17,401,806 2,961,462 Deprecation of furniture and office equipment 413,963 198,463 Investment income (27,561,093) (2,911,572) Net increase in provision for end-of-service benefits 287,559 128,325 Operating profit before movement in working capital 14,503,258 597,914 Takaful and other receivables (4,017,913) (14,057,233) Prepayments 165,834 (658,640) Retakaful and other payables 76,579,996 3,547,465 Retakaful deposit retained 3,659,803 1,838,593 Net cash from (used in) operating activities 90,890,978 (8,731,901) Investing activities Purchase of investments (56,254,409) (15,660,846) Proceeds from disposal of investments 65,033,027 15,055,504 Statutory deposit - (7,500,000) Purchase of furniture and office equipment (1,160,235) (1,030,268) Net cash from (used in) investing activities 7,618,383 (9,135,610) Financing activities Proceeds from issue of share capital - 60,000,000 Net cash from financing activities - 60,000,000 Net increase in cash and cash equivalents 98,509,361 42,132,489 Cash and cash equivalents at beginning of the year/period 42,132,489 - Cash and cash equivalents at the end of the year/period 140,641,850 42,132,489 The accompanying notes form an integral part of these financial statements.
ABU DHABI NATIONAL TAKAFUL COMPANY P.S.C. 9 for the year ended 31 December 2005 1 General Abu Dhabi National Takaful Company P.S.C. is a public shareholding company which was incorporated in Abu Dhabi on 16 November 2003. The Company is registered in accordance with UAE Federal Law No. 9 of 1984, as amended. The Company carries out takaful and retakaful activities of all classes. The registered address of the Company is P.O. Box 35335, Abu Dhabi, United Arab Emirates. The Company obtained its commercial license on 16 November 2003 and commenced operations on 1 December 2003. The Company operates in the United Arab Emirates. The financial statements are presented in UAE Dirham () since that is the currency in which the majority of the Company s transactions are denominated. 2 Summary of significant accounting policies Basis of preparation The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments. The principal accounting policies adopted are set out below: Adoption of new and revised International Financial Reporting Standards In the current period, the Company adopted IFRS 4 on Insurance Contracts which has become effective from 1 January 2005 and revised International Accounting Standard (IAS) 39, Financial Instruments: Recognition and Measurement, effective from 1 January 2005. The adoption of IFRS 4 has affected the presentation and disclosure with respect to insurance liabilities, reinsurance assets and insurance and reinsurance premiums.
ABU DHABI NATIONAL TAKAFUL COMPANY P.S.C. 10 2 Summary of significant accounting policies (continued) Adoption of new and revised International Financial Reporting Standards (continued) The Company has also incorporated the presentation and disclosures required by the following revised International Accounting Standards (IAS): 1. Presentation of financial statements (IAS 1) 2. Related party disclosure (ISA 24) Furniture and equipment Furniture and equipment are recorded at cost less accumulated depreciation and any impairment in values. The cost of furniture and equipment is their purchase cost, together with any incidental expenses of acquisition. Depreciation is calculated so as to write off the cost of furniture and equipment less their estimated residual values, on a straight - line basis over their expected useful economic lives. The principal annual rates used for this purpose are: % Furniture, fixtures and office equipment 20 Computer equipment and accessories 25 33.33 The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement. Impairment At each balance sheet date, the Company reviews the carrying amounts of its 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). The loss arising on an impairment of an asset is determined as the difference between the recoverable amount and the carrying amount of the asset and is recognised as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount and the increase is recognised as income immediately, provided that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised earlier.
ABU DHABI NATIONAL TAKAFUL COMPANY P.S.C. 11 2 Summary of significant accounting policies (continued) Investments in securities Investments in securities are recognised on settlement date basis and are initially measured at cost. Investments are classified as available for sale, and are measured at subsequent reporting dates at fair value, based on quoted market prices at the balance sheet date, where available. In the absence of quoted market prices, the fair value is determined with reference to the latest financial information of the investee. Unrealised gains and losses are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the net profit or loss for the period. Any significant change in the fair value of the investments which the Company has committed to purchase at the balance sheet date is recognised in the statement of changes in equity for investments classified as available for sale. Retakaful contract assets Contracts entered into by the Company for retakaful under which the Company is compensated for losses on one or more contracts issued by the Company and that meet the classification requirements for takaful contracts are classified as retakaful contracts held. The benefits to which the Company is entitled under its retakaful contracts held are recognised as retakaful assets. The Company assesses its retakaful assets for impairment on a regular basis. If there is objective evidence that the retakaful asset is impaired, the Company reduces the carrying amount of the retakaful assets to its recoverable amount and recognises that impairment loss in the statement of income. Takaful contract liabilities Takaful contract liabilities towards outstanding claims are made for all claims intimated to the Company and still unpaid at the balance sheet date, in addition to claims incurred but not reported. The unearned premium considered in the takaful contract liabilities comprise the estimated proportion of the gross premiums written which relates to the periods of takaful subsequent to the balance sheet date. The retakaful portion towards the above outstanding claims, claims incurred but not reported and unearned premiums is classified as retakaful contract assets in the financial statements. Gross contribution written Contributions are recognised when takaful risk is accepted by the Company and policies issued. Contribution recognition in respect of policies issued on a co-insurance or facultative basis represent the Company s proportionate share of the total contribution on such policies.
ABU DHABI NATIONAL TAKAFUL COMPANY P.S.C. 12 2 Summary of significant accounting policies (continued) Retakaful contribution ceded Retakaful ceded is accounted for as expense and charged to income statement based on the terms retakaful agreements. In the case of facultative retakaful contracts, retakaful premiums are generally booked as expense when the Company enters into such contracts, based on the rates stipulated in such contracts. In the case of treaty retakaful contracts, retakaful premiums are booked as expense as per the rates stipulated in the treaties for different categories of business. Retakaful income and expenses Retakaful income is recognised when retakaful is entered into and Retakaful expenses are recognised when the policies are issued. Provision for unearned contributions Provision for unearned contributions represents that portion of contributions written net of retakaful which relates to periods of takaful subsequent to the balance sheet date. This provision is made based on the higher of the amount required on the basis of time apportionment and the minimum rates prescribed by the UAE Insurance Companies Law which are 25% of the net contribution written on marine and 40% of the net contribution written on all other classes of general takaful. Outstanding claims Outstanding claims includes provision for outstanding claims and for those incurred but not reported (IBNR). The provision for outstanding claims represents the estimated amounts of all notified outstanding claims at the balance sheet date net of retakaful recoveries. The provision for IBNR claims is made at the balance sheet date based on management s past experience. End-of-service benefits Provision for end-of-service benefits is made in accordance with local labour legislation and is based on current remuneration rates and cumulative service at the balance sheet date. With respect to national employees, the Company makes contributions to the Social Insurance Scheme calculated as a percentage of the employee s salaries. The Company s obligations are limited to these contributions, which are expensed when due.
ABU DHABI NATIONAL TAKAFUL COMPANY P.S.C. 13 2 Summary of significant accounting policies (continued) Investment income Income from investment accounts is recognised on an accrual basis. Dividends including bonus shares received in lieu of dividend are recognised when the Company s right to receive payment is established. Gains or losses arising from transfer of investments are recognised in the income statement in the period in which they occur. Foreign currency transactions Foreign currency transactions are translated into UAE Dirhams () at the rate prevailing on the transaction date. Monetary foreign currency assets and liabilities are translated into UAE Dirhams at the rate prevailing at the balance sheet date. Differences on exchange are dealt with in the income statement. Cash and cash equivalents For the purpose of the statement of cash flows, the Company considers all bank and cash balances less bank overdrafts and bank deposits with a original maturity of less than three months at the balance sheet date and other than those under lien, to be cash and cash equivalents. Financial instruments Financial instruments mainly comprise cash and bank balances, term deposits, investment in securities, takaful receivables and retakaful and other payables. Cash and bank balances and term deposits are stated at their nominal values. Takaful and other receivables are stated at their nominal value as reduced by appropriate allowances for doubtful amounts. Retakaful and other payables are stated at their nominal values. Equity instruments are stated at the net proceeds received. 3 Statutory deposit In accordance with the requirements of Federal Law No.9 of 1984 (as amended), covering insurance companies and agencies, the Company maintains a bank deposit of 7,500,000 which cannot be utilised without the consent of the UAE Ministry of Economy and Commerce.
ABU DHABI NATIONAL TAKAFUL COMPANY P.S.C. 14 4 Available for sale investments The fair value of these investments comprises the following: 2005 2004 Investment in UAE quoted equity securities 28,184,000 - Investment in overseas quoted equity securities 2,266,772 1,482,155 Investment in unquoted UAE equity securities 5,687,608 2,004,902 Investment in other securities 3,816,006 - Unquoted UAE equity securities have been valued at cost. The fair value of these investments is arrived as follows: 39,954,386 3,487,057 2005 2004 Fair value at beginning of year/period 3,487,057 - Additions to investments during the year/period 56,254,409 15,660,846 Disposal of investments during the year/period (37,471,934) (12,143,932) Increase/(decrease) in fair value 17,684,854 (29,857) Fair value at end of year/period 39,954,386 3,487,057 5 Takaful contract liabilities and retakaful contract assets 2005 2004 Takaful contract liabilities Reported claims 6,715,128 667,179 Claims incurred but not reported 2,573,150 961,280 Unearned premiums 31,306,238 5,392,031 40,594,516 7,020,490 Retakaful contract assets Reported claims 3,701,411 389,775 Claims incurred but not reported 1,481,632 727,624 Unearned premiums 15,048,205 2,941,629 20,231,248 4,059,028
ABU DHABI NATIONAL TAKAFUL COMPANY P.S.C. 15 5 Takaful contract liabilities and retakaful contract assets (continued) Movement in the insurance contract liabilities and reinsurance contract assets during the year were as follows: 2005 2004 Gross Reinsurance Net Gross Reinsurance Net CLAIMS Notified claims 667,178 389,775 277,403 - - - Incurred but not reported 961,281 727,624 233,657 - - - Total at 1 January 1,628,459 1,117,399 511,060 - - - Claims settled during the year (1,628,459) (1,117,399) (511,060) - - - Increase in liabilities 9,288,278 5,183,043 4,105,235 1,628,459 1,117,399 511,060 Total at 31 December 9,288,278 5,183,043 4,105,235 1,628,459 1,117,399 511,060 Notified claims 6,715,128 3,701,411 3,013,717 667,178 389,775 277,403 Incurred but not reported 2,573,150 1,481,632 1,091,518 961,281 727,624 233,657 Total at the end of the year 9,288,278 5,183,043 4,105,235 1,628,459 1,117,399 511,060 UNEARNED PREMIUM Total at 1 January 5,392,031 2,941,629 2,450,402 - - - Increase during the year 31,306,238 15,048,205 16,258,033 5,392,031 2,941,629 2,450,402 Release during the year (5,392,031) (2,941,629) (2,450,402) - - - Net increase during the year 25,914,207 12,106,576 13,807,631 5,392,031 2,941,629 2,450,402 Total at 31 December 31,306,238 15,048,205 16,258,033 5,392,031 2,941,629 2,450,402
ABU DHABI NATIONAL TAKAFUL COMPANY P.S.C. 16 6 Related parties Related parties are those entities in which the Company or its Directors of the Company have a significant interest. Details of material transactions with such parties in the normal course of business are as follows: Year ended 31 December 2005 Period from 16 November 2003 (inception date) to 31 De 2004 Gross contributions written 4,834,885 2,784,995 The remuneration of key management personnel during the year/period was as follows: 2005 2004 Short term benefits 615,000 615,000 Long term benefits 120,000 120,000 The remuneration of Directors is accrued and paid as an appropriation out of the profits of the year in accordance with the Federal Law No. 8 applicable to Commercial Companies operating in UAE. The remuneration of key management personnel is based on the remuneration agreed in their employment contract as approved by the Board of Directors. 7 Takaful and other receivables 2005 2004 Takaful debtors 15,752,323 2,771,756 Accrued income 229,403 27,020 Other receivables 2,093,420 8,071,938 Due from related parties - 3,186,519 18,075,146 14,057,233
ABU DHABI NATIONAL TAKAFUL COMPANY P.S.C. 17 8 Furniture and equipment Furniture, fixtures and office equipment Computer equipment and accessories Total Cost At 16 November 2003 - - - Additions 634,976 395,292 1,030,268 At 1 January 2005 634,976 395,292 1,030,268 Additions 534,054 626,181 1,160,235 At 31 December 2005 1,169,030 1,021,473 2,190,503 Depreciation At 16 November 2003 - - - Charge for the period 128,108 70,355 198,463 At 1 January 2005 128,108 70,355 198,463 Charge for the year 197,546 216,417 413,963 At 31 December 2005 325,654 286,772 612,426 Net book value At 31 December 2005 843,376 734,701 1,578,077 At 31 December 2004 506,868 324,937 831,805 9 Share capital 2005 2004 Authorised, issued and fully paid: 60,000,000 shares of 1 each 60,000,000 60,000,000 At 31 December 2005, a total of 13,550,000 shares were held by Abu Dhabi Islamic Bank PJSC and 46,450,000 shares by UAE nationals and institutions.
ABU DHABI NATIONAL TAKAFUL COMPANY P.S.C. 18 10 Legal reserve In line with the provisions of the UAE Federal Commercial Companies Law No. (8) of 1984, (as amended), the Company is required to transfer annually to a legal reserve account an amount equivalent to 10% of its annual net profit, until such reserve reaches 50% of the paid up capital of the Company. 11 Proposed dividend The Board of Directors have proposed a dividend of 0.05 per share (2004 Nil) amounting to 3,000,000 (2004 Nil). This is subject to the approval of the Shareholders in the Annual Ordinary General Assembly. 12 Retakaful and other payables 2005 2004 Retakaful and other payables 8,497,379 3,172,723 Due to related parties 70,246,340 332,657 Accrued liabilities 1,383,742 42,085 Directors fee 1,200,000-81,327,461 3,547,465 13 Net earned contributions Year ended 31 December 2005 Period from 16 November 2003 (inception date) to 31 December 2004 Gross contributions written Gross contributions written 53,630,151 13,656,845 Change in unearned contributions provision (25,914,207) (5,392,031) 27,715,944 8,264,814 Retakaful contributions Retakaful contributions 26,972,885 7,741,945 Change in unearned contributions provision (12,106,577) (2,941,629) 14,866,308 4,800,316 Net earned contributions 12,849,636 3,464,498
ABU DHABI NATIONAL TAKAFUL COMPANY P.S.C. 19 14 General and administrative expenses Year ended 31 December 2005 Period from 16 November 2003 (inception date) to 31 December 2004 Staff costs 6,769,157 4,200,976 Rental expenses 388,888 249,435 Management fees 155,000 230,000 Depreciation on furniture and equipment 413,963 198,463 Others 2,872,334 645,918 10,599,342 5,524,792 15 Investment and other income Year ended 31 December 2005 Period from 16 November 2003 (inception date) to 31 December 2004 Return on investment accounts 1,855,786 635,714 Income from investments 27,561,093 2,593,458 Dividends 492,060 71,302 Other income - 653,428 29,908,939 3,953,902 16 Basic earning per share Basic earning per share is calculated by dividing the net profit for the year/period by the weighted average number of shares outstanding during the year/period as follows:
ABU DHABI NATIONAL TAKAFUL COMPANY P.S.C. 20 16 Basic earning per share (continued) Year ended 31 December 2005 Period from 16 November 2003 (inception date) to 31 December 2004 Net profit for year/period 23,961,023 221,236 Ordinary shares in issue through the period 60,000,000 60,000,000 Basic earning per share 0.40 0.004 The Company has not issued any instruments which would have an impact on earnings per share when exercised. 17 Takaful contracts Estimates and assumptions The Company makes estimates and assumptions that effect the reported amount of takaful assets and liabilities. Estimates and judgments are continually evaluated based on historical experience and the latest available information including expectations of future events that are believed to be reasonable under the circumstances. The estimation of ultimate liability arising from the claims made under takaful 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. The following schedules reflects the actual claims (based on year end estimates) compared to the previous estimates for the last period on an accident year basis: Reporting period/years December 2004 December 2005 At the end of the reporting period 1,628 9,288 One year later - 1,628 Current estimate of cumulative claims 1,628 10,916 Cumulative payments to date - (1,628) Liability Recognised in the balance sheet 1,628 9,288
ABU DHABI NATIONAL TAKAFUL COMPANY P.S.C. 21 17 Takaful contracts (continued) Sensitivity of underwriting profit and losses The contribution by the takaful operations in the net profit of the Company amounts to 19.4% for the year ended 31 December 2005. The Company does not foresee any major impact in the said ratio from takaful operations due to the following reasons: The Company has an overall risk retention level in the region of 49% and the same is mainly contributed by two classes of business i.e., Motor & Medical lines wherein the retention levels are 95%, 30% respectively or more. However, in these classes the liabilities are adequately covered by excess of loss reinsurance programs to guard against major financial impact. The Company has a net commission earnings of around 2.1% of the net takaful profit predominantly from the retakaful placement which remains as a comfortable source of income. Because of low risk retention in 95% volume of business and limited exposure in high retention areas like medical and motor the Company is comfortable to maintain a net loss ratio in the region of 55 60% and does not foresee any serious financial impact in the insurance net profit. Risk management objectives and policies The risk under any one takaful contract is the possibility that the insured event occurs and the uncertainty of the amount of the resulting claim. By the very nature of an takaful contract, this risk is random and therefore unpredictable. For a portfolio of takaful contracts where the theory of probability is applied to pricing and provisioning, the principal risk that the Company faces under its takaful contracts is that the actual claims and benefit payments exceed the carrying amount of the takaful liabilities. This could occur because the frequency or severity of claims and benefits are greater than estimated. Takaful covered events are random and the actual number and amount of claims and benefits will vary from year to year from the estimate established using statistical techniques. Experience shows that the larger the portfolio of similar takaful contracts, the smaller the relative variability about the expected outcome will be. In addition, a more diversified portfolio is less likely to be affected across the board by a change in any subset of the portfolio. The Company has developed its takaful underwriting strategy to diversify the type of takaful risks accepted and within each of these categories to achieve a sufficiently large population of risks to reduce the variability of the expected outcome. Factors that aggravate takaful risk include lack of risk diversification in terms of type and amount of risk, geographical location and type of industry covered. The Company manages these risks through its underwriting strategy, adequate retakaful arrangements and proactive claims handling. The underwriting strategy attempts to ensure that the underwritten risks are well diversified in terms of type and amount of risk, industry and geography. Underwriting limits are in place to enforce appropriate risk selection criteria. For example, the Company has the right not to renew individual policies, it can impose deductibles and it has the right to reject the payment of a fraudulent claim. Takaful contracts also entitle the Company to pursue third parties for payment of some or all costs (i.e., subrogation).
ABU DHABI NATIONAL TAKAFUL COMPANY P.S.C. 22 17 Takaful contracts (continued) Risk management objectives and policies (continued) The retakaful arrangements include excess of loss including catastrophe coverage. In addition to the overall Company retakaful programme, individual business units are permitted to purchase additional retakaful protection. Retakaful ceded contracts do not relieve the Company from its obligations to policyholders. The Company remains liable to its policyholders for the portion covered by retakaful to the extent that any retakaful does not meet the obligations assumed under the retakaful agreements. To minimise its exposure to significant losses from retakaful insolvencies, the Company evaluates the financial condition of its retakaful and monitors concentrations of credit risk arising from similar geographic regions, activities or economic characteristics of the retakaful companies. 18 Financial instruments (a) Interest rate risk management The Company is not exposed to significant interest rate risk as its interest-sensitive assets are repriced frequently. (b) Fair value of financial assets and liabilities The carrying value of the Company s financial assets and liabilities as recorded in the balance sheet approximates the fair value of those financial assets and liabilities. (c) Credit risk Substantially all of the Company s underwriting activities are carried out in the United Arab Emirates. For all classes of financial instruments held by the Company, other than those relating to insurance contracts as described in (e) below, the credit risk exposure to the Company approximates the carrying value as disclosed in the financial statements at the balance sheet date. Takaful and other receivables mainly comprise amounts due from insurance companies, customers, brokers and other debtors. The average credit period is approximately 90 days. The Company s credit risk is primarily attributable to its Takaful and other receivables. The Company has no significant concentration of credit risk, with exposure spread over a large number of customers.
ABU DHABI NATIONAL TAKAFUL COMPANY P.S.C. 23 18 Financial instruments (continued) (c) Credit risk (continued) Retakaful and other payables mainly comprise amounts payable to retakaful and other creditors. The average credit period taken is 60 days. The management considers that the carrying amount of retakaful and other payables approximates to their fair value. (d) Currency risk Assets are typically funded in the same currency as that of the business being transacted to eliminate exchange exposures, however investment in equity securities amounting to 1,278,682 are held in Omani Riyal. Management believes that there is a minimal risk of significant losses due to exchange rate fluctuations and consequently the Company does not hedge its foreign currency exposure. (e) Market risk Market risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices, whether those changes are caused by factors specific to the individual security, or its issuer, or factors affecting all securities traded in the market. The Company is exposed to market risk with respect to its investment in securities held by it directly or through investment managers. The Company limits market risk by actively monitoring the key factors that affect stock and the market movements, including analysis of the operational and financial performance of the investee. 19 Segment information Primary segment information The company is organised into two main business segments: Underwriting of general takaful business incorporating all classes of general takaful including fire, marine, motor, general accident, engineering and family takaful. This business is conducted fully with United Arab Emirates. Investments incorporating investments in UAE marketable equity securities, short-term investments with banks and other securities.
ABU DHABI NATIONAL TAKAFUL COMPANY P.S.C. 24 20 Contingencies and commitments The Company had no contingent liabilities and outstanding commitments as at 31 December 2005. 21 Employees The total number of employees in the Company as at 31 December 2005 was 58. 22 Comparative figures Certain comparative figures of prior period have been reclassified to conform with the current year presentation. 23 Approval of financial statements The financial statements were approved by the Board of Directors and authorised for issue in their meeting on 5 February 2006.