EMIRATES INSURANCE COMPANY P.S.C. Reports and financial statements for the year ended 31 December 2013

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1 EMIRATES INSURANCE COMPANY P.S.C. Reports and financial statements for the year ended 31 December 2013

2 EMIRATES INSURANCE COMPANY P.S.C. Reports and financial statements for the year ended 31 December 2013 Pages Board of Directors 1 Board of Directors annual report 2-3 Chief Executive Officer s report 4-7 Independent auditor s report 8-9 Statement of financial position 10 Statement of income 11 Statement of comprehensive income 12 Statement of changes in equity Statement of cash flows

3 EMIRATES INSURANCE COMPANY P.S.C. 1 BOARD OF DIRECTORS Chairman Mr. Abdullah Mohamed Al Mazrui Deputy Chairman Mr. Fadel Saeed Al Darmaki Directors Mr. Mohammed Abdul Jalil Al Fahim Mr. Ahmed Saeed Al Badi Mr. Hussain Ali Al Sayegh Mr. Mohammed Ahmed Saeed Al Qasimi Mr. Mohamed Obeid Khalifa Al Jaber Mr. Mohammed Rashed Al Naseri Mr. Abdulla Ali Al Saadi Chief Executive Officer Mr. Jason Light Chief Financial Officer Mr. Aart Lehmkuhl Auditors Deloitte & Touche (M.E.)

4 EMIRATES INSURANCE COMPANY P.S.C. 2 BOARD OF DIRECTORS ANNUAL REPORT Dear Shareholders, On behalf of the Board of Directors, it is my pleasure to present the annual report of Emirates Insurance Company (EIC) detailing the progress we have made across our business for the fiscal year ended 31 December Macroeconomic picture The UAE economy recorded growth of about 4.5% in 2013 an improvement on Signs of global and regional economic recovery were evident in both Abu Dhabi & Dubai. Insurance Operations Despite exceptionally challenging market conditions EIC s premium income in 2013 rose to 721m an increase of 11.8%. Heavy rate attrition across all classes, particularly in motor insurance, has meant a reduction in many insurance companies operating profits across the market. Despite generally poorer underwriting results in the UAE it was very pleasing to see our result increase by 8% to 61m this year. Investment Performance Year 2013 saw a robust recovery in UAE s equity market. Dubai Index grew by 108% while Abu Dhabi s index increased by 63% in UAE Investor s reignited their interest in local shares in anticipation of an upgrade to Emerging Market status and Dubai winning its bid to host Expo The Board of Directors adopted IFRS9 in 2009 when it was decided that EIC s direct equity holdings would be classified as financial assets at Fair value through other comprehensive income. Due to this classification, growth in the value of the equity portfolio is not reflected in the income statement but instead in the other comprehensive income. The strong performance of our equity portfolio in 2013 is therefore increased amounting to 214m recorded in the other comprehensive income. While the equity market progressed, 2013 turned out to be the most challenging year for bond markets. In 2013, our fixed income bond portfolio managed to return 3% for the year compared to double digit returns in These returns are in line with other GCC fixed income funds available in the market. Although the Bond performance was disappointing, we are pleased with the overall performance of this portfolio since the 2010 inception. Investment income as per the profit and loss account is 33% lower compared to last year, however our total comprehensive income, which reflects the positive result in our equity portfolio, increased by 210% from 97m to 299m. Total Assets of the Company increased by 17.2% as compared to December This is due to the surge in UAE securities market, better technical results in 2013 and excellent working capital management. The book value per share increased by 27.3% from 5.92 to Our liquidity and working capital position is extremely strong and no additional capital will be required in 2014.

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6 EMIRATES INSURANCE COMPANY P.S.C. 4 CHIEF EXECUTIVE OFFICER S REPORT Dear Shareholders, Business Associates and Fellow Employees, During 2013, the UAE insurance market continued its position as one of the most crowded and competitive insurance markets in the world. Despite this EIC was able to record significant top line growth to 721m whilst also increasing its operation result. In the investment arena the bond market had a poor year whilst equities flourished. Insurance Operations Report Despite very challenging market conditions, EIC s Gross Written Premium Income increased by nearly 12% during Net earned premium increased by 32% mainly due to the changes we made to the reinsurance program following an in depth review in 2012 and secondly the contribution by EIC International in its first full year of operation. Our net incurred and paid claims increased in the same proportion as earned premium for the reasons discussed above. IBNR was also revised from the beginning of 2013 to bring it in line with expected changes to insurance regulation and international best practice. This change resulted in an increase in our net IBNR provision of 4m. Commission expenses increased by 22%. This is mainly due to the nature of EIC International s business model where new business is exclusively sourced via brokers. Commission income declined by 27% due to the termination of some proportional treaties which were replaced by excess of loss treaties at lower overall cost. Our overall loss ratio improved slightly from 59% in 2012 to 58% at the end of The loss ratio in motor improved during the year while loss ratio by the international division was ahead of our expectations. The underwriting performance of the other classes, including medical, was also very good. Operational expenses increased by only 3.7% due to improved productivity. I am very pleased to report that our underwriting profit increased by nearly 8% to 61m. Our underwriting margin continues to be extremely healthy in comparison to our peers.

7 EMIRATES INSURANCE COMPANY P.S.C. 5 CHIEF EXECUTIVE OFFICER S REPORT (CONTINUED) AM Best Credit Rating I am pleased that our A- rating by the international credit rating agency A.M. Best, originally granted in 2011, was reconfirmed in A- status, a rarity amongst retail insurers in the Middle East opens many doors of opportunity in our domestic business and is the cornerstone of our offering in our International Division. International Division 2013 marked the first full year of operations for our International Division based in Dubai. The division offers energy and marine facultative reinsurance capacity to the afro-asian (including MENA) market. I am pleased that both our premium income and our underwriting profitability exceeded our forecast expectations for Year 1. Comprehensive Income Statement During the implementation of IFRS 9 in 2009, the Board of Directors decided that EIC s direct equity holdings would be classified as financial assets at Fair value through other comprehensive income. Due to this classification, growth in the value of the equity portfolio is not reflected in the income statement but instead in other comprehensive income. The strong performance of our equity portfolio in 2013 is therefore reflected in an increase in other comprehensive income by 214m. Although our net profit for the year is down by 13% to 86m (resulting in EPS of 63 fils as compared to 73 fils) our total comprehensive income, which reflects the positive result in our equity portfolio, increased by 210% from 97m to 299m. Investment Operations While the equity market progressed, 2013 turned out to be the most challenging year for bond markets. In 2013, our fixed income bond portfolio managed to return 3% for the year compared to double digit returns in These returns are in line with other GCC fixed income funds available in the market. As part of the IFRS 9 implementation it was decided to classify this bond portfolio as Fair value through profit and Loss resulting in a 4.6m unrealised loss recognized in the income statement compared with an unrealized gain of 7.2m in Despite this recent setback, our GCC fixed income discretionary portfolio has generated a return of nearly 29% since inception (Dec 2010). Fixed deposit rates declined further in 2013 as compared to 2012 which resulted in lower interest income from conventional deposits. One of our private equity investments went into Chapter 11 protection in USA in 2012 and later emerged with a reorganization plan in Some losses were recognized due to this reorganization during The net result of the above is lower investment income for Year 2013 compared with 2012 ( 35m vs 53m). The Board of directors revised the Investment policy of the company significantly in 2010 to reduce the volatility in the portfolio. The composition of the current portfolio compared with the previous policy can be seen in the graphs below. Direct Equity has been reduced substantially and the proceeds have been reinvested in bonds. The Private Equity asset class has also been reduced significantly.

8 EMIRATES INSURANCE COMPANY P.S.C. 6 CHIEF EXECUTIVE OFFICER S REPORT (CONTINUED) Investment Operations (continued) Asset allocation 2013 VS 2007 As of 31 December 2013 As of 31 December % 2% Direct Equity Private Equity 12% 7% 0%5% Deposits 14% 57% Fixed Income Bonds Funds 5% 76% During 2013, Total Assets of the Company increased by 17.2% as compared to December This is due to the surge in UAE securities market, better technical results in 2013 and excellent working capital management. Regulation During 2013, the Insurance Authority produced some draft regulations concerning the investment policies, solvency and reserving of insurance companies and invited comments from the insurance market. EIC fully participated in the process and we await the Authority s next steps. A number of changes to the regulations of Insurance Brokers have been introduced during 2013 which we hope will improve the contribution this important distribution channel makes to the insuring public. Emiratisation During 2013, EIC built further on the success of our e-team programme which encourages the training and mentoring of UAE nationals working for EIC. We are proud to continue our participation in the Ministry of Presidential Affairs, Absher programme which offers a range of discounts and special offers to nationals working in the private sector.

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13 EMIRATES INSURANCE COMPANY P.S.C. 11 Statement of income for the year ended 31 December Notes (Restated) Gross premiums written 720,846, ,194,022 Change in unearned premium provision (25,896,244) (13,790,611) Premium income earned 694,950, ,403,411 Reinsurance premiums ceded (366,693,238) (389,563,844) Change in unearned premium provision (7,048,392) 2,314,689 Re-insurance ceded (373,741,630) (387,249,155) Net earned premiums 321,208, ,154,256 Gross claims incurred (362,776,426) (348,595,381) Reinsurance share of claims incurred 175,339, ,457,656 Net claims incurred (187,437,418) (143,137,725) Commission income 42,907,136 58,539,514 Commission expenses (57,170,129) (46,739,315) Operating expenses 19 (58,835,001) (56,711,211) Net underwriting income 60,673,287 56,105,519 Net investment income 20 35,391,197 52,687,555 Other expenses, net 21 (10,361,650) (10,190,167) Profit for the year 22 85,702,834 98,602,907 Basic and diluted earnings per share The accompanying notes form an integral part of these financial statements.

14 EMIRATES INSURANCE COMPANY P.S.C. 12 Statement of comprehensive income for the year ended 31 December (Restated) Profit for the year 85,702,834 98,602,907 Other comprehensive income: Items that will not be reclassified subsequently to profit or loss: Increase/(decrease) in fair value of investments classified at FVTOCI 213,552,912 (2,075,597) Total other comprehensive income/(loss) for the year 213,552,912 (2,075,597) Total comprehensive income for the year 299,255,746 96,527,310 The accompanying notes form an integral part of these financial statements.

15 EMIRATES INSURANCE COMPANY P.S.C. 13 Statement of changes in equity for the year ended 31 December 2013 Share capital Legal reserve General reserve Investment revaluation reserve Retained earnings Total Balance at 1 January ,000,000 67,500, ,000,000 23,040,993 94,133, ,674,818 Profit for the year ,702,834 85,702,834 Other comprehensive income Increase in fair value of investments designated at fair value through other comprehensive income FVTOCI (note 7) ,552, ,552,912 Total other comprehensive income: ,552, ,552,912 Total comprehensive income for the year ,552,912 85,702, ,255,746 Transfer to retained earnings on disposal of investments at fair value through other comprehensive income (FVTOCI) ,084,689 (1,084,689) - Dividends (note 16) (81,000,000) (81,000,000) Balance at 31 December ,000,000 67,500, ,000, ,678,594 97,751,970 1,017,930,564 The accompanying notes form an integral part of these financial statements.

16 EMIRATES INSURANCE COMPANY P.S.C. 14 Statement of changes in equity Share capital Legal reserve General reserve Investment revaluation reserve Retained earnings Total Balance at 1 January ,000,000 67,500, ,000,000 44,472,109 97,175, ,147,508 Profit for the year (restated) ,602,907 98,602,907 Other comprehensive loss Decrease in fair value of investments designated at fair value through other comprehensive income FVTOCI (note 7) (2,075,597) - (2,075,597) Total other comprehensive loss (restated): (2,075,597) - (2,075,597) Total comprehensive income for the year (restated) (2,075,597) 98,602,907 96,527,310 Transfer to retained earnings on disposal of investments at fair value through other comprehensive income (FVTOCI) (19,355,519) 19,355,519 - Transfer to general reserve ,000,000 - (40,000,000) - Dividends (81,000,000) (81,000,000) Balance at 31 December 2012 (Restated) 135,000,000 67,500, ,000,000 23,040,993 94,133, ,674,818 The accompanying notes form an integral part of these financial statements.

17 EMIRATES INSURANCE COMPANY P.S.C. 15 Statement of cash flows for the year ended 31 December (Restated) Cash flows from operating activities Profit for the year 85,702,834 98,602,907 Adjustments for: Depreciation of property and equipment 1,980,355 1,674,830 Depreciation of investment properties 761,886 1,257,215 Gain on disposal of investments in securities (23,113,287) (23,184,491) Unrealised loss on investments classified at fair value through profit or loss 20,821,152 1,617,344 Dividends from investments in securities (19,826,965) (22,039,680) Interest income (10,957,763) (7,570,062) Net allowance for doubtful debts 611,722 1,750,000 Gain on disposal of property and equipment (35,398) (138,000) Provision for employees end of service benefit 2,833,626 2,200,124 Cash flow from operating activities before changes in operating assets and liabilities 58,778,162 54,170,187 Net movement in reinsurance contract assets (2,380,566) (60,643,494) Net movement in insurance contract liabilities 67,744,480 69,913,128 Decrease/(increase) in insurance and other receivables 36,115,835 (51,513,659) Increase in prepayments (620,963) (530,060) (Decrease)/increase in insurance and other payables (688,787) 29,611,216 Decrease in reinsurance deposit retained (11,268,718) (2,065,213) Increase/(decrease) in accruals and deferred income 834,225 (1,459,319) Cash generated by operating activities 148,513,668 37,482,786 Employees end of service benefit paid (636,188) (1,927,042) Net cash generated by operating activities 147,877,480 35,555,744 Cash flows from investing activities Payments to acquire financial assets (356,609,627) (200,377,583) Proceeds from disposal of financial assets 278,087, ,722,367 Proceeds from disposal of property and equipment 36, ,000 Payment to acquire property and equipment (1,491,265) (1,308,148) Additions to investment properties - (307,996) Dividends from investments in securities 19,826,965 22,039,680 Movement in term deposits with maturity greater than 3 months 9,061,107 (5,384,757) Interest income received 10,485,312 7,024,211 Net cash (used in)/generated by investing activities (40,603,440) 44,545,774 Cash flows from financing activities Dividends paid (81,000,000) (81,000,000) Net cash used in financing activities (81,000,000) (81,000,000) Net increase/(decrease) in cash and cash equivalents 26,274,040 (898,482) Cash and cash equivalents at beginning of the year 62,082,012 62,980,494 Cash and cash equivalents at end of the year (note 24) 88,356,052 62,082,012 The accompanying notes form an integral part of these financial statements.

18 EMIRATES INSURANCE COMPANY P.S.C. 16 for the year ended 31 December General information Emirates Insurance Company P.S.C. (the Company ) is a public shareholding company which was incorporated in Abu Dhabi on 27 July The Company is registered in accordance with UAE Federal Law No. 6 of 2007 concerning Insurance Companies and Agents, and is registered in the Insurance Companies Register under registration No. 2. The Company s principal activity is the transaction of general insurance and re-insurance business of all classes. The Company operates through its head office in Abu Dhabi and branch offices in Dubai, Al Ain, Jebel Ali Freezone and Sharjah. The Company is domiciled in the United Arab Emirates and its registered office address is P.O. Box 3856, Abu Dhabi, United Arab Emirates. The Company s ordinary shares are listed in the Abu Dhabi Securities Exchange. 2 Adoption of new and revised International Financial Reporting Standards (IFRSs) 2.1 New and revised IFRSs applied with no material effect on the financial statements The following new and revised IFRSs have been adopted in these financial statements. The application of these new and revised IFRSs has not had any material impact on the amounts reported for the current and prior years but may affect the accounting for future transactions or arrangements, and resulted in additional disclosures in this financial statements. New and revised IFRSs Summary of requirement IAS 19 Employee Benefits (as IAS19 includes a number of amendments to the accounting for defined revised in 2011) benefit plans, including actuarial gains and losses that are now recognised in other comprehensive income (OCI) and permanently excluded from profit and loss; expected returns on plan assets that are no longer recognised in profit or loss, instead, there is a requirement to recognise interest on the net defined benefit liability (asset) in profit or loss, calculated using the discount rate used to measure the defined benefit obligation, and; unvested past service costs are now recognised in profit or loss at the earlier of when the amendment occurs or when the related restructuring or termination costs are recognised. IAS 27 Separate Financial Statements (as revised in 2011) The Standard requires that when an entity prepares separate financial statements, investments in subsidiaries, associates, and jointly controlled entities are accounted for either at cost, or in accordance with IAS 39 Financial Instruments: Recognition and Measurement. The Standard also deals with the recognition of dividends, certain group reorganisations and includes a number of disclosure requirements.

19 EMIRATES INSURANCE COMPANY P.S.C Adoption of new and revised International Financial Reporting Standards (IFRSs) (continued) 2.1 New and revised IFRSs applied with no material effect on the financial statements (continued) New and revised IFRSs Summary of requirement IAS 28 Investments in Associates This standard prescribes the accounting for investments in and Joint Ventures (as revised in associates and sets out the requirements for the application of the 2011) equity method when accounting for investments in associates and joint ventures. The Standard defines significant influence and provides guidance on how the equity method of accounting is to be applied (including exemptions from applying the equity method in some cases). It also prescribes how investments in associates and joint ventures should be tested for impairment. Amendments to IFRS 1 Firsttime Adoption of International Financial Reporting Standards relating to accounting for government loans at below market interest rate Amendments to IFRS 7 Financial Instruments: Disclosures relating to offsetting financial assets and liabilities IFRS 10 Consolidated Financial Statements Amends IFRS 1 First-time Adoption of International Financial Reporting Standards to address how a first-time adopter would account for a government loan with a below-market rate of interest when transitioning to IFRSs. The amendments mirror the requirements for existing IFRS preparers in relation to the application of amendments made to IAS 20 Accounting for Government Grants and Disclosure of Government Assistance in relation to accounting for government loans. Amends the disclosure requirements in IFRS 7 Financial Instruments: Disclosures to require information about all recognised financial instruments that are set off in accordance with paragraph 42 of IAS 32 Financial Instruments: Presentation. The Standard identifies the principles of control, determines how to identify whether an investor controls an investee and therefore must consolidate the investee, and sets out the principles for the preparation of consolidated financial statements. The Standard introduces a single consolidation model for all entities based on control, irrespective of the nature of the investee (i.e. whether an entity is controlled through voting rights of investors or through other contractual arrangements as is common in 'special purpose entities'). IFRS 11 Joint Arrangements Replaces IAS 31 Interests in Joint Ventures. Requires a party to a joint arrangement to determine the type of joint arrangement in which it is involved by assessing its rights and obligations and then account for those rights and obligations in accordance with that type of joint arrangement.

20 EMIRATES INSURANCE COMPANY P.S.C Adoption of new and revised International Financial Reporting Standards (IFRSs) (continued) 2.1 New and revised IFRSs applied with no material effect on the financial statements (continued) New and revised IFRSs Summary of requirement IFRS 13 Fair Value IFRS 13 applies when another IFRS requires or permits fair value Measurement measurements or disclosures about fair value measurements (and measurements, such as fair value less costs to sell, based on fair value or disclosures about those measurements). With some exceptions, the standard requires entities to classify these measurements into a 'fair value hierarchy' based on the nature of the inputs, Level 1 - quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date, Level 2 - inputs other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, Level 3 - unobservable inputs for the asset or liability. Entities are required to make various disclosures depending upon the nature of the fair value measurement (e.g. whether it is recognised in the financial statements or merely disclosed) and the level in which it is classified. Annual Improvements Cycle covering amendments to IFRS 1, IAS 1, IAS 16, IAS 32 and IAS 34 IFRS 12 Disclosure of Interests in Other Entities Makes amendments to the following standards: IFRS 1 - Permit the repeated application of IFRS 1, borrowing costs on certain qualifying assets, IAS 1 - Clarification of the requirements for comparative information, IAS 16 - Classification of servicing equipment, IAS 32 - Clarify that tax effect of a distribution to holders of equity instruments should be accounted for in accordance with IAS 12 Income Taxes, IAS 34 - Clarify interim reporting of segment information for total assets in order to enhance consistency with the requirements in IFRS 8 Operating Segments Requires the extensive disclosure of information that enables users of financial statements to evaluate the nature of, and risks associated with, interests in other entities and the effects of those interests on its financial position, financial performance and cash flows.

21 EMIRATES INSURANCE COMPANY P.S.C Application of new and revised International Financial Reporting Standards (IFRSs) (continued) 2.2 New and revised IFRSs in issue but not yet effective The Company has not applied the following new and revised IFRSs that have been issued but are not yet effective: New and revised IFRSs Effective for annual periods beginning on or after Amendments to IAS 32 Financial Instruments: Presentation relating to offsetting financial assets and liabilities IFRS 10 Consolidated Financial Statements Amendments for Investments entities IFRS 12 Disclosure of Interests in Other Entities Amendments for Investments entities IAS 27 Separate Financial Statements Investments entities Amendments for IAS 36 Impairment of Assets Amendments arising from recoverable amount disclosures for non-financial assets IAS 39 Financial instruments Recognition and Measurement amendments for novations of derivatives IAS 19 Employee Benefits Amended to clarify the requirements that relate to how contributions from employees or third parties that are linked to service should be attributed to periods of service Amendments to IFRSs issued in 2011, 2012, and 2013 covering amendments to IFRS 1, IFRS 2, IFRS 3, IFRS 8, IFRS 13, IAS 16, IAS 24, IAS 38, and IAS January January January January January January July July 2014 IFRIC 21 Levies 1 January 2014 Management anticipates that these amendments will be adopted in the financial statements for the initial period when they become effective. Management has not yet had the opportunity to consider the potential impact of the adoption of these amendments. During the year 2010, the Company adopted IFRS 9 Financial Instruments (IFRS 9) in advances of its effective date. Refer to note 3.10 for the financial instruments accounting policies.

22 EMIRATES INSURANCE COMPANY P.S.C Summary of significant accounting policies 3.1 Statement of compliance The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and applicable requirements of UAE Federal Law No. 6 of 2007 concerning Insurance Companies and Agents. 3.2 Basis of preparation The financial statements have been prepared on the historical cost basis except for the revaluation of certain financial instruments. Historical cost is generally based on fair value of the consideration given in exchange for assets. The principal accounting policies are set out below: 3.3 Insurance contracts Definition The Company issues contracts that transfer insurance risk. Insurance contracts are those contracts that transfer significant insurance risk. As a general guideline, the Company defines significant insurance risk as the possibility of having to pay benefits on the occurrence of an insured event that are at least 25% more than the benefits payable if the insured event did not occur. Recognition and measurement Insurance contracts are classified into two main categories, depending on the duration of risk and whether or not the terms and conditions are fixed. These contracts are casualty and property insurance contracts. Casualty insurance contracts protect the Company s customers against the risk of causing harm to third parties as a result of their legitimate activities. Damages covered include both contractual and non contractual events. The typical protection offered is designed for employers who become legally liable to pay compensation to injured employees (employers liability) and for individual and business customers who become liable to pay compensation to a third party for bodily harm or property damage (public liability). Property insurance contracts mainly compensate the Company s customers for damage suffered to their properties or for the value of property lost. Customers who undertake commercial activities on their premises could also receive compensation for the loss of earnings caused by the inability to use the insured properties in their business activities (business interruption cover). For all these insurance contracts, premiums are recognised as revenue (earned premiums) proportionally over the period of coverage. The portion of premium received on in-force contracts that relates to unexpired risks at the end of the reporting period is reported as the unearned premium liability. Claims and loss adjustment expenses are charged to profit or loss as incurred based on the estimated liability for compensation owed to contract holders or third parties damaged by the contract holders.

23 EMIRATES INSURANCE COMPANY P.S.C Summary of significant accounting policies (continued) 3.3 Insurance contracts (continued) Re-insurance contracts held Contracts entered into by the Company with reinsurers under which the Company is compensated for losses on one or more contracts issued by the Company and that meet the classification requirements for insurance contracts are classified as re-insurance contracts held. Contracts that do not meet these classification requirements are classified as financial assets. Insurance contracts entered into by the Company under which the contract holder is another insurer are included with insurance contracts. The benefits to which the Company is entitled under its re-insurance contracts held are recognised as reinsurance contract assets. The Company assesses its re-insurance contract assets for impairment on a regular basis. If there is objective evidence that the re-insurance contract asset is impaired, the Company reduces the carrying amount of the re-insurance contract assets to its recoverable amount and recognises that impairment loss in the profit or loss. Amounts recoverable from or due to reinsurers are measured consistently with the amounts associated with the reinsured insurance contracts and in accordance with the terms of each reinsurance contract. Insurance contract liabilities Insurance contract liabilities towards outstanding claims are made for all claims intimated to the Company and still unpaid at the end of the reporting period, in addition for claims incurred but not reported. The unearned premium considered in the insurance contract liabilities comprise the estimated proportion of the gross premiums written which relates to the periods of insurance subsequent to the end of the reporting period and is estimated using the time proportionate method. The unearned premium calculated by the above method (after reducing the reinsurance share) complies with the minimum unearned premium amounts to be maintained using the 25% and 40% method for marine and non-marine business respectively, as required by UAE Federal Law No. 6 of 2007, as amended, concerning Insurance Companies and Agents. The unearned premium calculated by the time proportionate method accounts for the estimated acquisition costs incurred by the Company to acquire policies and defers these over the life of the policy. The re-insurers portion towards the above outstanding claims, claims incurred but not reported and unearned premium is classified as re-insurance contract assets in the financial statements. Deferred policy acquisition costs Commissions and other acquisition costs that vary with and are related to securing new contracts and renewing existing contracts are amortised over the terms of the policies as premium is earned. Salvage and subrogation reimbursements Estimates of salvage and subrogation reimbursements are considered as an allowance in the measurement of the insurance liability for claims.

24 EMIRATES INSURANCE COMPANY P.S.C Summary of significant accounting policies (continued) 3.3 Insurance contracts (continued) Liability adequacy test At the end of each reporting period, liability adequacy tests are performed to ensure the adequacy of the contract liabilities net of related deferred policy acquisition costs. Any deficiency is immediately charged to profit or loss initially by writing off the deferred policy acquisition costs and by subsequently establishing a provision for losses arising from liability adequacy tests. Receivables and payables related to insurance contracts Receivables and payables are recognised when due. These include amounts due to and from agents, brokers and insurance contract holders. If there is objective evidence that the insurance receivable is impaired, the Company reduces the carrying amount of the insurance receivable accordingly and recognises that impairment loss in profit or loss. 3.4 Property and equipment Property and equipment are stated at historical cost less accumulated depreciation and impairment, if any. Historical cost includes expenditure that is directly attributable to the acquisition of the asset. Subsequent costs are included in the asset s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance expenses are charged to the statement of income during the financial period in which they are incurred. Depreciation is calculated so as to write off the cost of property 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: % Buildings 6.67 Furniture, fixtures and office equipment 25 Motor vehicles 25 Computer equipment and accessories 25 The asset s residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. The gain or loss arising on the disposal or retirement of an item of property and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount.

25 EMIRATES INSURANCE COMPANY P.S.C Summary of significant accounting policies (continued) 3.5 Capital work in progress Capital work in progress is stated at cost. When commissioned, capital work in progress is transferred to the appropriate property and equipment and is depreciated in accordance with Company s policy. 3.6 Investment properties Investment properties which are properties held to earn rentals and/or for capital appreciation, are stated at cost less accumulated depreciation and any impairment losses. Depreciation is calculated using the straight line method to reduce the cost of investment properties to their estimated residual values over their expected useful life of 15 years. 3.7 Impairment of non-financial assets At the end of each reporting period, 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). Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

26 EMIRATES INSURANCE COMPANY P.S.C Summary of significant accounting policies (continued) 3.8 Provisions Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. 3.9 Employee benefits An accrual is made for the estimated liability for employees' entitlement to annual leave and leave passage as a result of services rendered by eligible employees up to the end of the year. Provision is also made for the full amount of end of service benefit due to non-uae national employees in accordance with the UAE Labour Law, for their period of service up to the end of the year. The accrual relating to annual leave and leave passage is disclosed as a current liability, while the provision relating to end of service benefit is disclosed as a non-current liability. Pension contributions are made in respect of UAE national employees to the UAE General Pension and Social Security Authority in accordance with the UAE Federal Law No (9) of 2000 for Pension and Social Security. Such contributions are charged to profit or loss during the employees period of service Financial assets All financial assets are recognised and derecognised on trade date when the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned. Financial assets are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss (FVTPL), which are initially measured at fair value. All recognised financial assets are subsequently measured in their entirety at either amortised cost or fair value Classification of financial assets The Company classifies its financial assets under the following categories: financial assets at amortised cost, investments at fair value through profit or loss (FVTPL) and investments at fair value through other comprehensive income (FVTOCI).

27 EMIRATES INSURANCE COMPANY P.S.C Summary of significant accounting policies (continued) 3.10 Financial assets (continued) Financial assets at amortised cost and the effective interest method Cash and cash equivalents Cash and cash equivalents which include cash on hand and deposits held at call with banks with original maturities of three months or less, are classified as financial assets at amortised cost. Insurance receivables Insurance receivables and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as financial assets at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short- term receivables when the recognition of interest would be immaterial. Investments at amortised cost Debt instruments are measured at amortised cost if both of the following conditions are met: the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and the contractual terms of the instrument give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Debt instruments meeting these criteria are measured initially at fair value plus transaction costs (except if they are designated as at FVTPL see note below). They are subsequently measured at amortised cost using the effective interest method less any impairment (see note below). Subsequent to initial recognition, the Company is required to reclassify debt instruments from amortised cost to FVTPL if the objective of the business model changes so that the amortised cost criteria is no longer met. The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts the estimated future cash receipts through the expected life of the debt instrument, or (where appropriate) a shorter period, to the net carrying amount on initial recognition. The Company may irrevocably elect at initial recognition to classify a debt instrument that meets the amortised cost criteria above as at FVTPL if that designation eliminates or significantly reduces an accounting mismatch had the financial asset been measured at amortised cost.

28 EMIRATES INSURANCE COMPANY P.S.C Summary of significant accounting policies (continued) 3.10 Financial assets (continued) Financial assets at FVTPL Debt instrument financial assets that do not meet the amortised cost criteria described in note above, or that meet the criteria but the entity has chosen to designate as at FVTPL at initial recognition, are measured at FVTPL. Subsequent to initial recognition, the Company is required to reclassify debt instruments from FVTPL to amortised cost if the objective of the business model changes so that the amortised cost criteria starts to be met and the instrument s contractual cash flows meet the amortised cost criteria. Reclassification of debt instruments designated as at FVTPL at initial recognition (see note ) is not permitted. Investments in equity instruments are mandatorily classified as at FVTPL, unless the Company designates an investment that is not held for trading as at fair value through other comprehensive income (FVTOCI) at initial recognition as described in note below. Financial assets at FVTPL are measured at fair value, with any gains or losses arising on re-measurement recognised in profit or loss. Dividend income on investments in equity instruments at FVTPL is recognised in profit or loss when the Company s right to receive the dividends is established in accordance with IAS 18 Revenue and is included in the net investment income line item in the profit and loss Financial assets at FVTOCI At initial recognition, the Company can make an irrevocable election (on an instrument-by-instrument basis) to designate investments in equity instruments as at FVTOCI. Designation at FVTOCI is not permitted if the equity investment is held for trading. A financial asset is held for trading if: it has been acquired principally for the purpose of selling it in the near term; or on initial recognition, it is part of a portfolio of identified financial instruments that the Company manages together and has evidence of a recent actual pattern of short-term profit-taking. Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value with gains and losses arising from changes in fair value recognised in other comprehensive income and accumulated in the investments revaluation reserve. Where the asset is disposed of, the cumulative gain or loss previously accumulated in the investments revaluation reserve is not reclassified to profit or loss, but is reclassified to retained earnings. Dividends on these investments in equity instruments are recognised in profit or loss when the Company s right to receive the dividends is established in accordance with IAS 18 Revenue, unless the dividends clearly represent a recovery of part of the cost of the investment. Dividends earned are recognised in profit or loss and are included in net investment income in the profit and loss.

29 EMIRATES INSURANCE COMPANY P.S.C Summary of significant accounting policies (continued) 3.10 Financial assets (continued) Impairment of financial assets at amortised cost Financial assets that are measured at amortised cost are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial asset have been affected. Objective evidence of impairment could include: significant financial difficulty of the issuer or counterparty; or default or delinquency in interest or principal payments; or it becoming probable that the borrower will enter bankruptcy or financial re-organisation. For certain categories of financial asset, such as insurance receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Company s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, as well as observable changes in local economic conditions that correlate with default on receivables. The amount of the impairment loss recognised is the difference between the asset s carrying amount and the present value of estimated future cash flows, reflecting the impact of collateral and guarantees, discounted at the financial asset s original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss Derecognition of financial assets The Company derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Company recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Company retains substantially all the risks and rewards of ownership of a transferred financial asset, the Company continues to recognise the financial asset.

30 EMIRATES INSURANCE COMPANY P.S.C Summary of significant accounting policies (continued) 3.11 Financial liabilities and equity instruments issued by the Company Classification as debt or equity Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. Financial liabilities Financial liabilities comprised of insurance payables and other liabilities are initially measured at fair value, net of transaction costs and are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis, except for short-term liabilities when the recognition of interest would be immaterial. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period. Derecognition of financial liabilities The Company derecognises financial liabilities when, and only when, the Company s obligations are discharged, cancelled or they expire Derivative financial instruments The Company enters into derivative financial instruments to manage its exposure to interest rate risk using interest rate swaps. Derivative financial instruments are initially measured at fair value at contract date, and are subsequently re-measured at fair value at the end of each reporting period. All derivatives are carried at their fair values as assets where the fair values are positive and as liabilities where the fair values are negative. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities. Fair values of the derivatives are carried out by independent valuers by reference to quoted market prices, discounted cash flow models and recognised pricing models as appropriate. Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in profit or loss as they arise.