AL KHAZNA INSURANCE
COMPANY P.S.C.
Reports and financial
statements for the year
ended 31 December 2003
AL KHAZNA INSURANCE COMPANY P.S.C.
Reports and financial statements
for the year ended 31 December 2003
Pages
Board of Directors
1
Report of the Directors
2-5
Independent auditor’s report
6-7
Balance sheet
8
Income statement
9
Statement of changes in equity
10
Statement of cash flows
11
Notes to the financial statements
12 - 28
AL KHAZNA INSURANCE COMPANY P.S.C.
1
BOARD OF DIRECTORS
Chairman
H.E. Abdulla Bin Mohammed Al-Masaood
Vice Chairman
H.E. Sheikh Shaia Bin Ahmed Al Hamid
Directors
H.E. Ghanim Bin Mohammed Al Souwaidi
H.E. Hamad Bin Sultan Al Darmaki
H.E. Mohammed Bin Khalifa Al Yousif
H.E. Masaood Bin Ahmed Al-Masaood
H.E. Ahmed Bin Khalifa Al Yousif
H.E. Ali Ahmed Al Najjar
General Manager
Mr. John Jibran Melcon
Auditors
Deloitte & Touche
P.O. Box 990
Abu Dhabi
Head Office
Al Khazna Tower
Al Najda Street
P.O. Box 73343
Abu Dhabi, United Arab Emirates
Tel: 6767000
Fax: 6768500
AL KHAZNA INSURANCE COMPANY P.S.C.
THE SEVENTH ANNUAL REPORT OF
THE BOARD OF DIRECTORS FOR THE
YEAR ENDED 31 December 2003
Dear Shareholders,
2
AL KHAZNA INSURANCE COMPANY P.S.C.
THE SEVENTH ANNUAL REPORT OF
THE BOARD OF DIRECTORS FOR THE
YEAR ENDED 31 December 2003 (Continued)
3
AL KHAZNA INSURANCE COMPANY P.S.C.
THE SEVENTH ANNUAL REPORT OF
THE BOARD OF DIRECTORS FOR THE
YEAR ENDED 31 December 2003 (Continued)
4
AL KHAZNA INSURANCE COMPANY P.S.C.
THE SEVENTH ANNUAL REPORT OF
THE BOARD OF DIRECTORS FOR THE
YEAR ENDED 31 December 2003 (Continued)
5
Independent auditor’s report
to the Shareholders of Al Khazna Insurance
Company P.S.C.
6
We have audited the accompanying balance sheet of Al Khazna Insurance Company
P.S.C. (a Public Joint Stock Company) as of 31 December 2003 and the related
statements of income, changes in equity and cash flows for the year then ended as set
out on pages 8 to 28. 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 present fairly, in all material respects, the
financial position of Al Khazna Insurance Company P.S.C. as of 31 December 2003
and the results of its operations and 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.
Independent auditor’s report
to the Shareholders of Al Khazna Insurance
Company P.S.C. (continued)
7
Also, in our opinion, proper books are maintained by the Company, a count of assets
was properly performed and 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 year, 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.
Abu Dhabi, UAE
9 February 2004
For Deloitte & Touche
Alfred Strolla
(Registration No. 137)
8
AL KHAZNA INSURANCE COMPANY P.S.C.
Balance sheet
at 31 December 2003
Notes
2003
AED
2002
AED
3
4
5
5
6
7,410,748
44,321,633
17,069,680
267,273,603
4,500,000
1,544,787
45,263,710
14,379,720
291,304,230
4,500,000
340,575,664
356,992,447
45,186,455
37,452,459
303,702
100,477,162
8,484,421
5,587,750
36,746,070
239,382
86,518,092
6,548,086
Total current assets
191,904,199
135,639,380
Total assets
532,479,863
492,631,827
380,000,000
1,783,412
20,141,577
19,349,950
2,124,250
22,800,000
19,554,240
380,000,000
1,783,412
16,452,955
15,661,328
(565,710)
19,000,000
13,245,260
465,753,429
445,577,245
1,101,736
1,049,072
14,863,109
11,036,823
39,724,766
9,264,294
8,530,912
28,210,304
65,624,698
46,005,510
532,479,863
492,631,827
ASSETS
Non-current assets
Property, plant and equipment
Investment property
Investment in available-for-sale securities
Other investments
Statutory deposit
Total non-current assets
Current assets
Other investments
Investment in available-for-sale securities
Trade and other receivables
Prepayments
Bank deposits
Bank and cash
5
5
7
8
EQUITY AND LIABILITIES
Capital and reserves
Share capital
Share premium
Other reserve
Regulatory reserve
Investment revaluation reserve
Proposed dividend
Accumulated profits
10
11
12
13
Total capital and reserves
Non-current liabilities
Provision for end of service benefit
Current liabilities
Provision for outstanding claims
Provision for unearned premiums
Trade and other payables
14
Total current liabilities
Total equity and liabilities
.......................................
Chairman
The accompanying notes form an integral part of these financial statements.
.........................................
Director
AL KHAZNA INSURANCE COMPANY P.S.C.
9
Income statement
for the year ended 31 December 2003
Notes
Gross premiums written
Reinsurance premiums ceded
2003
AED
2002
AED
110,051,174
(77,865,130)
95,350,614
(70,909,048)
Net premiums written
Net transfer to provision for unearned
premiums
32,186,044
24,441,566
(2,505,911)
(1,605,024)
Net premiums earned
29,680,133
22,836,542
Gross claims incurred
Reinsurance share of claims incurred
(57,005,284)
40,657,607
(27,106,682)
13,967,294
Net claims incurred
(16,347,677)
(13,139,388)
Gross commission earned
Less: commission incurred
11,762,477
(4,209,104)
15,014,396
(4,330,958)
Net commission earned
7,553,373
10,683,438
20,885,829
20,380,592
15
30,607,689
21,142,690
16
(14,607,294)
(13,528,047)
36,886,224
27,995,235
9.71
7.37
Underwriting income
Net investment and other income
Administrative and other operating
expenses
Net profit for the year
Earnings per ordinary share
22
The accompanying notes form an integral part of these financial statements.
10
AL KHAZNA INSURANCE COMPANY P.S.C.
Statement of changes in equity
for the year ended 31 December 2003
Balance at 1 January 2002
Net profit for the year
Transfer to legal reserve
Transfer to technical reserve
Decrease in fair value of
available-for-sale investments
(note 5)
Proposed dividend
Dividend payment
Directors’ remuneration
Balance at 1 January 2003
Net profit for the year
Transfer to legal reserve
Transfer to technical reserve
Increase in fair value of
availablefor-sale investments (note 5)
Proposed dividend
Dividend payment
Directors’ remuneration
Balance at 31 December 2003
Share
capital
AED
Share
premium
AED
Legal
reserve
AED
Regulatory
reserve
AED
Investment
revaluation
reserve
AED
Proposed
dividend
AED
Accumulated
profits
AED
Total
AED
380,000,000
1,783,412
13,653,431
12,861,804
613,850
26,600,000
10,109,073
445,621,570
-
-
2,799,524
-
2,799,524
-
-
27,995,235
(2,799,524)
(2,799,524)
27,995,235
-
-
-
-
-
-
-
-
-
380,000,000
1,783,412
16,452,955
15,661,328
-
-
3,688,622
-
3,688,622
-
-
-
-
-
-
2,689,960
-
-
-
-
-
-
380,000,000
1,783,412
20,141,577
19,349,950
2,124,250
The accompanying notes form an integral part of these financial statements.
(1,179,560)
(565,710)
-
-
(1,179,560)
19,000,000
(26,600,000)
-
(19,000,000)
(260,000)
(26,600,000)
(260,000)
19,000,000
13,245,260
445,577,245
36,886,224
(3,688,622)
(3,688,622)
36,886,224
-
-
2,689,960
22,800,000
(19,000,000)
-
(22,800,000)
(400,000)
(19,000,000)
(400,000)
22,800,000
19,554,240
465,753,429
AL KHAZNA INSURANCE COMPANY P.S.C.
11
Statement of cash flows
for the year ended 31 December 2003
Cash flows from operating activities
Net profit for the year
Adjustments for:
Provision for outstanding claims
Provision for unearned premiums
Investment income
Depreciation of property, plant and equipment
(Profit)/loss on disposal of property, plant and equipment
Net transfer to provision for end of service benefit
Cash flows from operating activities before
movements in working capital
(Increase)/decrease in working capital:
Trade and other receivables
Prepayments
Trade and other payables
Net cash from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
and additions to investment property
Proceeds from disposal of property, plant
and equipment
Net investment in of short term bank deposits
Net investment in other securities and term deposits
Proceeds from disposal of investment in available-for-sale
securities
Investment income
2003
AED
2002
AED
36,886,224
27,995,235
5,598,815
2,505,911
(30,485,318)
601,936
(13,871)
52,664
(354,468)
1,605,024
(20,922,896)
611,444
15,890
187,228
15,146,361
9,137,457
334,824
(64,320)
10,303,084
534,306
226,066
(8,922,180)
25,719,949
975,649
(5,412,210)
(10,670,284)
95,682
(6,318,767)
(11,043,328)
13,758
(39,199,715)
(144,844,238)
5,587,750
19,947,562
(612,750)
19,656,252
2,856,689
(175,656,977)
(19,000,000)
(26,600,000)
9,576,638
(201,281,328)
Cash and cash equivalents at the beginning
of the year
53,866,463
255,147,791
Cash and cash equivalents at the end of
year (note 17)
63,443,101
53,866,463
Net cash from/(used in) investing activities
Cash flows used in financing activities
Dividend distribution
Net increase/(decrease) in cash and cash equivalents
The accompanying notes form an integral part of these financial statements.
12
AL KHAZNA INSURANCE COMPANY P.S.C.
Notes to the financial statements
for the year ended 31 December 2003
1
General
Al Khazna Insurance Company P.S.C. is a public shareholding company incorporated in
Abu Dhabi by Emiri Decree No. (4) of 11 June 1996.
The Company is engaged in insurance and reinsurance of all classes of business, with
the exception of endowments and annuities.
2
Summary of significant accounting policies
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:
Property, plant and equipment
The cost of property, plant and equipment is their purchase cost, together with any
incidental expenses of acquisition.
Depreciation is calculated so as to write off the cost of property, plant and equipment
less their estimated residual values, on a straight line basis, over the expected useful
economic lives of the assets concerned. The principal annual rates used for this
purpose are:
%
Furniture, fixtures and office equipment
Motor vehicles
Computer equipment and accessories
20
25
20
The gain or loss arising on the disposal or retirement of an asset is determined as the
difference between the sale proceeds and the carrying amount of the asset and is
recognised in the income statement.
AL KHAZNA INSURANCE COMPANY P.S.C.
13
Notes to the financial statements
for the year ended 31 December 2003 (continued)
2
Summary of significant accounting policies (continued)
Capital work in progress
Capital work in progress is stated at cost. When commissioned, capital work in progress
is transferred to the appropriate property, plant and equipment asset category or
investment property and is depreciated in accordance with Company’s policy.
Investment property
Investment property is stated at cost less accumulated depreciation and any impairment
losses. Depreciation is calculated using the straight line method to reduce the cost of
the investment property to its estimated residual value over its expected useful life of 40
years.
Investments
Investments in securities are recognised on a settlement date basis and are initially
measured at cost.
At subsequent reporting dates, investment in debt securities which are funded directly to
the issuer are stated at amortised cost less provision for impairment if any.
Investments classified as available-for-sale 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 by reference to the
latest financial information of the investee. For such investments, 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 available-for-sale investments which the
Company has committed to purchase at the balance sheet date is recognised in the
statement of equity.
AL KHAZNA INSURANCE COMPANY P.S.C.
14
Notes to the financial statements
for the year ended 31 December 2003 (continued)
2
Summary of significant accounting policies (continued)
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.
Provision for unearned premiums
Provision for unearned premiums represents that portion of premiums written net of
reinsurance which relates to periods of insurance subsequent to the balance sheet date.
This provision is calculated at 25% of the net premium written on marine business and at
40% of the net premium written on all other insurance business.
Provision for outstanding claims
Outstanding claims include provision for outstanding claims and 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 reinsurance
recoveries. The provision for IBNR claims is made at the balance sheet date based on
past experience.
Provision for end of service benefit
Provision for end of service benefit is made in accordance with local labour legislation
and is based on current remuneration rates and cumulative service at the balance sheet
date.
AL KHAZNA INSURANCE COMPANY P.S.C.
15
Notes to the financial statements
for the year ended 31 December 2003 (continued)
2
Summary of significant accounting policies (continued)
Gross premiums written
Premiums are recognised when the insurance risk is accepted by the Company and
policies issued. Premium recognition in respect of policies issued on a co-insurance or
facultative basis represent the Company’s proportionate share of the total premium on
such policies.
Investment income
Interest on bank deposits and originated securities is recognised on an accruals basis.
For originated securities which have variable rates of return, the minimum guaranteed
return is recognised in the income statement using the effective interest rate method.
Returns in excess of the minimum guaranteed return, if any, are recognised on maturity.
Dividend income is recognised as and when received.
Rental income is recognised on a straight line basis over the lease period net of related
depreciation and other expenses.
Commission income and expenses
Commission income is recognised when re-insurance is entered into and commission
expenses when the policies are issued.
Foreign currency transactions
Foreign currency transactions are translated into UAE Dirhams (AED) at the rate ruling
on the transaction date. Foreign currency assets and liabilities are translated into UAE
Dirhams at the rate ruling 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 and bank deposits with a maturity at the balance sheet date of less than
three months to be cash and cash equivalents.
Financial instruments
Financial instruments mainly comprise cash and bank balances, investments in
securities, term deposits, trade and other receivables and trade and other payables.
Cash and bank balances are stated at their nominal values.
16
AL KHAZNA INSURANCE COMPANY P.S.C.
Notes to the financial statements
for the year ended 31 December 2003 (continued)
2
Summary of significant accounting policies (continued)
Financial instruments (continued)
Trade and other receivables are stated at their nominal values as reduced by
appropriate allowances for doubtful amounts.
Trade and other payables are stated at their nominal values.
Equity instruments are stated at the net proceeds received.
3
Property, plant and equipment
Furniture,
fixtures
and office
equipment
AED
Motor
vehicles
AED
Computer
equipment
and
accessories
AED
Capital
work in
progress
AED
Total
AED
Cost
1 January 2003
Additions
Disposals
2,697,729
727,278
(275,414)
405,000
218,000
(270,000)
1,812,833
1,370,871
(366,359)
4,233,559
-
31 December 2003
3,149,593
353,000
2,817,345
4,233,559
Depreciation
1 January 2003
Charge for the year
Disposals
1,862,828
299,203
(210,597)
352,896
55,160
(270,000)
1,155,051
247,573
(349,365)
-
3,370,775
601,936
(829,962)
31 December 2003
1,951,434
138,056
1,053,259
-
3,142,749
Net book value
31 December 2003
1,198,159
214,944
1,764,086
4,233,559
7,410,748
31 December 2002
834,901
52,104
657,782
-
1,544,787
4,915,562
6,549,708
(911,773)
10,553,497
Capital work in progress represents cost incurred on the Company’s new Al Ain building.
Land for construction of the building was allotted free of cost by the Executive Council of
Abu Dhabi.
AL KHAZNA INSURANCE COMPANY P.S.C.
17
Notes to the financial statements
for the year ended 31 December 2003 (continued)
4
Investment property
AED
Cost
1 January 2003
Additions
45,833,149
209,718
31 December 2003
46,042,867
Depreciation
1 January 2003
Charge for the year
569,439
1,151,795
31 December 2003
1,721,234
Net book value
31 December 2003
44,321,633
31 December 2002
45,263,710
Investment property represents the cost of construction of the Abu Dhabi Head Office
building. The Company occupies two floors and a portion of the mezzanine floor of the
building for its Head Office with the remaining sixteen floors available for letting to third
parties. The fair value of the property is estimated to be AED 64,669,890. The fair value
of the property is based on the open market valuation carried out by M/S Asteco, P.O.
Box 45640, Abu Dhabi, United Arab Emirates in their report dated 20 October 2002.
Land for construction of the property has been allotted free of cost by the Executive
Council of Abu Dhabi.
The rental income earned by the Company from its investment property during the year
amounted to AED 5,536,002 (2002 – AED 830,245). Direct operating expenses incurred
on the investment property amounted to AED 2,346,520 (2002 – AED 1,229,452).
18
AL KHAZNA INSURANCE COMPANY P.S.C.
Notes to the financial statements
for the year ended 31 December 2003 (continued)
5
Investments
Available-for-sale securities
The fair value of these investments comprised the following:
Included in non-current assets
Investment in quoted UAE securities
Investment in unquoted UAE securities
Included under current assets
Investment in unquoted UAE securities
Total
2003
AED
2002
AED
16,844,680
225,000
14,154,720
225,000
17,069,680
14,379,720
-
5,587,750
17,069,680
19,967,470
The investment in the unquoted UAE securities represents the Company’s equity
interest in National Finance Company carried at cost which in the Director’s opinion
represents the fair value at the balance sheet date.
The fair values of these investments is arrived as follows:
2003
AED
2002
AED
Fair value at 1 January
Additions during the year
Realisations during the year
Increase/(decrease) in fair value
19,967,470
(5,587,750)
2,689,960
20,534,280
3,012,750
(2,400,000)
(1,179,560)
Fair value at 31 December
17,069,680
19,967,470
During the year Company received liquidation proceeds of AED 5,696,250 from its
investment in Emirates Takaful Insurance Company which has been liquidated.
AL KHAZNA INSURANCE COMPANY P.S.C.
19
Notes to the financial statements
for the year ended 31 December 2003 (continued)
5
Investments (continued)
2003
AED
2002
AED
Other originated investments
Term deposit with bank
143,749,217
123,524,386
150,062,970
141,241,260
Total
267,273,603
291,304,230
Other originated investments
Term deposits with bank
10,667,589
34,518,866
-
Total
45,186,455
-
Other investments
Included under non-current assets:
Included under current assets:
Other originated investments comprise the following:
1) Capital guaranteed call range accrual notes issued by local and international
banks all denominated in US Dollars amounting to AED 84,311,167. All these
notes are recallable at the option of the issuing banks. The maturity ranges
between 3 to 10 years from the balance sheet date. Return on these investments
is mostly linked to global market interest rates. One of these investments
amounting to AED 73,311,667 is placed with one banking institution based in
Switzerland.
2) Capital guaranteed non-callable range accrual notes issued by local and
international banks denominated in US Dollars amounting to AED 13,566,050.
The interest rate on these investments are linked to a specific range of 6 months
US Dollar LIBOR. These investments have maturity periods between 2-3 years
from the balance sheet date.
3) Sovereign Bonds denominated in Euro of AED 45,872,000 with a guaranteed
return of 8.75% per annum maturing in 2007.
AL KHAZNA INSURANCE COMPANY P.S.C.
20
Notes to the financial statements
for the year ended 31 December 2003 (continued)
5
Investments (continued)
4) Capital guaranteed stock linked bank note issued by an international bank
denominated in US Dollars amounting to AED 10,667,589 maturing in 2004 with a
minimum guaranteed return of 9% on maturity.
Term deposits comprise of deposit with a banking institution based in Sultanate of Oman
of AED 34,518,866 carrying an annual interest rate of 5.85% maturing in 2004 and
callable range deposits with an international bank based in Switzerland amounting to
AED 123,524,386 with interest linked to 6 months US Dollar Libor.
6
Statutory deposit
In accordance with the requirements of Federal Law Number 9 of 1984 (as amended)
concerning Insurance Companies and Agencies, the Company maintains a bank deposit
of AED 4,500,000 which cannot be utilised without the consent of the UAE Ministry of
Economy and Commerce.
7
Trade and other receivables
Insurance receivables
Accrued interest
Due from related parties (note 9)
Other receivables
2003
AED
2002
AED
30,727,694
4,247,783
1,720,676
756,306
27,972,096
3,206,570
4,162,433
1,404,971
37,452,459
36,746,070
Trade and other receivables are stated net of allowance for doubtful debts of AED
1,165,092 (2002 – AED 765,092).
8
Bank deposits
Bank deposits are held in local banking institutions. The original maturity term ranges
from one month to twelve months. Interest is receivable at rates between 1.38% and
2.25% annually.
AL KHAZNA INSURANCE COMPANY P.S.C.
21
Notes to the financial statements
for the year ended 31 December 2003 (continued)
9
Related parties
Related parties are those in which the Directors of the Company have a significant
interest. Details of transactions with such parties, in the normal course of business, are
as follows:
2002
2003
AED
AED
Net premiums written
13,585,174
13,406,583
Claims paid
7,096,599
3,077,455
Commission and other expenses
3,464,943
3,555,213
Liquidation proceeds from unquoted investments
5,696,250
-
-
3,012,750
Purchase of unquoted investments
10
Share capital
2003
AED
2002
AED
Authorised:
3,800,000 shares of AED 100 each
380,000,000
380,000,000
Issued and fully paid:
3,800,000 shares of AED 100 each
380,000,000
380,000,000
11
Legal reserve
In accordance with the UAE Federal Law number (8) of 1984 (as amended) concerning
Commercial Companies and the Company’s Articles of Association, 10% of net profit
has been transferred to a non-distributable legal reserve. Such transfers are required to
be made until the balance of the legal reserve equals one half of the Company’s paid up
share capital.
12
Regulatory reserve
In accordance with Article 57 of the Articles of Association of the Company, 10% of the
Company’s net profit for the year are transferred to the regulatory reserve.
AL KHAZNA INSURANCE COMPANY P.S.C.
22
Notes to the financial statements
for the year ended 31 December 2003 (continued)
13
Proposed dividend
The Board of Directors have proposed a dividend of AED 6 per share (2002 – AED 5 per
share) amounting to AED 22,800,000 (2002 – AED 19,000,000). This is subject to the
approval of the Shareholders in the General Assembly.
14
Trade and other payables
Insurance payables
Due to related parties (note 9)
Creditors for purchase of property, plant
and equipment
Other payables
Directors’ remuneration
Accrued expenses
15
2003
AED
2002
AED
23,485,677
271,766
15,956,698
368,780
3,727,444
9,954,343
400,000
1,885,536
2,380,228
7,765,041
260,000
1,479,557
39,724,766
28,210,304
2003
AED
2002
AED
17,520,441
235,912
3,189,482
9,539,483
122,371
14,938,354
707,736
(399,207)
5,676,013
219,794
30,607,689
21,142,690
Net investment and other income
Interest income
Dividend income
Net income/(loss) from investment property
Exchange gain from investments
Other income
Exchange gain includes unrealised gain resulting from revaluation of investments
denominated in Euros at the year end of AED 7,852,000 (2002 – AED 963,700)
AL KHAZNA INSURANCE COMPANY P.S.C.
23
Notes to the financial statements
for the year ended 31 December 2003 (continued)
16
Administrative and other operating expenses
Staff costs
Depreciation of property, plant and equipment
Rental expenses
Others
17
2003
AED
2002
AED
9,288,022
601,936
528,222
4,189,114
8,726,015
611,444
883,236
3,307,352
14,607,294
13,528,047
100,477,162
86,518,092
(45,518,482)
(39,199,715)
54,958,680
47,318,377
8,484,421
6,548,086
63,443,101
53,866,463
Cash and cash equivalents
Bank deposits
Less: Bank deposits with maturity of greater
than three months at the balance sheet date
Bank and cash
18
Financial instruments
(a)
Interest rate risk management
The Company’s interest rate risk is mainly attributable to its long term bank deposits and
originated investments. The Company generally tries to minimise the interest rate risk
by closely monitoring the market interest rates and investing in those financial assets in
which such risk is expected to be minimal.
As for the other assets, the Company is not excessively exposed to interest rate risk as
its interest-sensitive assets are repriced frequently.
AL KHAZNA INSURANCE COMPANY P.S.C.
24
Notes to the financial statements
for the year ended 31 December 2003 (continued)
18
Financial instruments (continued)
(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 their fair values.
(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 of the Company
approximates to the carrying value as disclosed in the financial statements at the
balance sheet date.
Trade and other receivables 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 trade and other receivables. The
amounts presented in the balance sheet are net of allowances for doubtful receivables
estimated by the Company’s management based on prior experience and the current
economic environment.
The Company has no significant concentration of credit risk, with exposure spread over
a large number of customers.
Trade and other payables comprise amounts payable to insurance creditors and other
creditors. The average credit period taken is 60 days.
(d)
Currency risk
The Company’s currency risk is mainly attributable to its originated investment in
Sovereign Euro bonds and the long term deposits held with banking institutions (note 5)
which are denominated in Euros and Omani Riyals respectively. The Directors believe
that the possible losses due to exchange rate fluctuation on these investments is
minimal and consequently the same have not been hedged for this risk.
Apart from the above, the Company has all of its long term bank deposits and originated
investments denominated in US Dollars. As the US Dollar is pegged to the UAE Dirham,
the Company has minimal risk of significant losses due to exchange rate fluctuations.
AL KHAZNA INSURANCE COMPANY P.S.C.
25
Notes to the financial statements
for the year ended 31 December 2003 (continued)
18
Financial instruments (continued)
(e)
Insurance risk
The Company in the normal course of business enters into reinsurance arrangements
with other parties to minimise losses arising from large claims. Reinsurance ceded
contracts do not relieve the Company from its obligations to policyholders. The
Company remains liable to its policyholders for the portion reinsured to the extent that
any reinsurer does not meet the obligations assumed under the reinsurance
agreements.
To minimise its exposure to significant losses from reinsurer insolvencies, the Company
evaluates the financial condition of its reinsurers and monitors concentrations of credit
risk arising from similar geographic regions, activities or economic characteristics of the
reinsurers.
(f)
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 investments in marketable
securities. The Company limits market risk by actively monitoring the key factors that
affect stock and market movements, including analysis of the operational and financial
performance of the investees.
19
Segment information
Primary segment information
The Company is organised into two main business segments:
Underwriting of general insurance business – incorporating all classes of general
insurance viz; fire, marine, motor, general accident and miscellaneous.
Investments – incorporating available-for-sale securities, originated securities, term
deposits with banks and investment properties.
26
AL KHAZNA INSURANCE COMPANY P.S.C.
Notes to the financial statements
for the year ended 31 December 2003 (continued)
19
Segment information (continued)
Primary segment information (continued)
Segment revenue
Segment result
Unallocated income
2003
Underwriting
AED
2003
Investments
AED
2003
Total
AED
2002
Underwriting
AED
2002
Investments
AED
2002
Total
AED
121,813,651
33,253,697
155,067,348
110,365,010
22,572,348
132,937,358
6,278,535
30,485,318
36,763,853
122,371
6,852,545
20,922,896
27,775,441
219,794
Net profit for the year
Segment assets
Unallocated assets
36,685,567
483,076,316
Total assets
Segment liabilities
Unallocated liabilities
27,995,235
36,886,224
519,761,883
12,717,980
35,323,669
-
450,760,072
-
492,631,827
532,479,863
52,735,666
4,455,266
Total liabilities
There are no transactions between the business segments.
57,190,932
9,535,502
66,726,434
486,083,741
6,548,086
39,364,696
2,380,228
41,744,924
5,309,658
47,054,582
AL KHAZNA INSURANCE COMPANY P.S.C.
27
Notes to the financial statements
for the year ended 31 December 2003 (continued)
19
Segment information (continued)
Secondary segment information
The Company’s underwriting business is based entirely within the United Arab Emirates
and other GCC countries except for treaty reinsurance arrangements which are
conducted with companies based primarily in Europe. The investments of the Company
are held in the UAE, other GCC countries, Iran and Europe.
Revenue
2003
AED
Revenue
2002
AED
Total assets
2003
AED
Total assets
2002
AED
124,561,549
111,961,478
261,871,671
233,890,131
Iran
11,780,599
1,522,336
55,771,550
47,919,550
Europe
18,847,571
19,673,338
214,836,642
210,822,146
155,189,719
133,157,152
532,479,863
492,631,827
United Arab Emirates
and other GCC
countries
20
Contingent liabilities
At 31 December 2003, the Company had contingent liabilities in respect of outstanding
letters of guarantee, issued in the normal course of business, amounting to
AED 8,277,436 (2002 - AED 11,184,611).
21
Capital commitments
Committed and contracted towards Al Khazna
Tower Project – Al Ain
2003
AED
2002
AED
3,400,000
-
AL KHAZNA INSURANCE COMPANY P.S.C.
28
Notes to the financial statements
for the year ended 31 December 2003 (continued)
22
Earnings per ordinary share
The calculation of earnings per ordinary share is based on the net profit attributable to
the Shareholders of Al Khazna Insurance Company P.S.C. of AED 36,886,224 (2002 –
AED 27,995,235) and the weighted average number of shares in issue during the year of
3,800,000 shares (2002 – 3,800,000 shares).
23
Employees
The total number of employees in the Company at the end of the year was 91 (2002 84).
24
Approval of financial statements
The financial statements were approved by the Board of Directors and authorised for
issue in their meeting held on xx xxxxxxxx2004.
25
Comparative figures
Certain comparative figures have been reclassified to conform with the current year
presentation.