Islamic Arab Insurance Co. (Salama) and its subsidiaries Directors’ report and consolidated financial statements for the year ended 31 December 2016

Transcription

1. Islamic Arab Insurance Co . (Salama) and its subsidiaries Directors’ report and consolidated financial statements for the year ended 31 December 2016
2. Islamic Arab Insurance Co . (Salama) and its subsidiaries Directors’ report and consolidated financial statements for the year ended 31 December 2016 Contents Directors’ report Independent auditors' report Page 1-3 4 - 10 Consolidated statement of profit or loss 11 Consolidated statement of profit or loss and other comprehensive income 12 Consolidated statement of financial position 13 Consolidated statement of cash flows 14 Consolidated statement of changes in equity 15 - 16 Notes 17 - 76
3. r · . v <......J f@; ~1~~ ,-,yUJI ~Y-' ( \ vl ri)'.:=.:;; ...... lil"";~ ->~~)'I Registration No (17) under Federal Law No (6) of 2007 ( U .;. ) ~GJJ ~r1( ~)l....)'1 4.Sy:J1 ISLAMIC ARAB INSURANCE CO . (P.S.C.) "1:( l RI (. Ol R I, n RI ("""/,, r We present 37 th Annual Report together with the audited consolidated financial statements for the year ended 31 December 2016. We are proud to announce that during the year 2016 SALAMA has won "Best Family Takaful Operator - ME" Award at Islamic Business & Finance Awards, which was announced at the award ceremony, attended by over 200 Islamic bankers and financiers from around the world. This award is a testimony to SALAMA's strong foundation and values on which the Family Takaful Business is built, always keeping customers at the heart of the business. Last year we have received "Family Takaful Company of the year" Award from MIlA (Middle East Insurance Awards). SALAMA apart from operations in UAE, do have many sustainable operations conducting Islamic insurance in their respective regions. In the year 2016 our operations across the region have recorded tremendous growth in their net profits, it rose to AED 57 MN from AED 22 MN last year. However, this is despite the fact that during the year our operations in Egypt and Algeria have suffered huge foreign currency setback against US Dollar. The consolidated net loss during the year 2016 is due to discontinued operations of BEST RE and losses in Motor portfolio in UAE. Motor portfolio in UAE by its very nature is highly competitive and volatile, like last year the motor insurance business faced many challenges leading to losses for many operators in the market. 1 Claim s Department Head Office Dubal - Spectrum Building Dubal QUSill':; 4, Oama<;cus St TE'l 04 3577000 Te Fax: 04 3577418 fall- 04 2670870 P.O.Box: 10214 POBox 10214 Abu Dhabi Branch Oil 2674040 AI A in Branch Dud Metha Branch Dubai AI Nasr Plala Building T('I 04 3ST~060 ..... ~ • ! .. ~ ........... ,-,. • . , . ..,F......£,. J, ~ .,y: . :. -F'~ .......i...:~ PO .Box 10214 . :;'I",!o\' • : T';: • l ': • . • \·v:. " '.'t': : ___ '_"'" _ ;~~ ... -5: ~ ... _ Sharj ah Branch '1...;,.... iharJat"l - Mah, rabl BUilding Abu Dhabi - DIB Buddmg ~---~:. · : F;\x 04 3572993 Tel 026352577 TeL 03 7663996 Fax 0263142'12 Fax 037669451 Tel 065744S51 ~x Of, 5744552 P.O. Box 7688 POBox 1623 POBox ;,':·1811 ~ ~.::.. _ · '1",... .. 1"0,"' . , ... :.\ \:'--' } ... · r \ ., - ~.!:: \ 11'\''';~ _.......: : '-'-'~ ..4A.-o :.-"~ . 't -."-;:'t:"v _....£.! _--=- ,-,,\,\ ~,.. :.....i..~ _ """ ....
4. - r ··y <......J (II f@; ~~~~ "'~~"k:;;,'I'-''''' WI ~-,"",( ' Y) ":;"JI~,~ Registration No. (17) under Federal Law No. 16) of 2007 Ct!""';" ) ~G.u ~.rJ1 ....... )l...)'1 <Sy;.J1 ISLAMIC ARAB INSURANCE CO . (P S.C.) L......., I '->ll'L IZI ( tiL {It TL Rl (,,:.:,(1., Going forward with the help of new and more stringent insurance regulations it is expected that insurance sector in UAE will see improvement that will benefit both companies and policyholders. SALAMA has been able to achieve market leadership in many segments and has grown continuously and organically with stronger partnerships and distribution channels. Rest assured SALAMA is strong and seasoned to weather cyclical losses without impacting its growth strategy. SALAMA's net shareholders' equity as of31 December 2016 is AED 710 million which is substantially larger than other operators and higher than the minimum regulatory requirement. The following are highlights from our consolidated financial statements for years ended 31 December 2016 and 2015: 2015 AED '000 Gross written contributions 933,346 Contributions earned 699,854 Incurred claims 455,850 Net UW (loss) / income 56,228 Investment income 18,914 Net loss for the year (162,840) SALAMA remains strong and resilient in face of short term challenges. We are very confident that after drastically reducing UAE motor business, we will be able to improve its temporary situation and yield better results from this segment. While implementing corrective action for the motor business, SALAMA will continue to nurture other business 2 Head Office Dub;:!1 - Spectrum Budding Tel' 04 3577000 F<ix 04357/-l18 P,Q,Box' 10214 Abu Dhab i Branch Abu Dhab DIS Budalnr n 4, Dama5ru$ Tel 042674040 Fa~ 042670870 P,OBox: 10214 QUScllS AI Ain Branch AI Ain Ai Otabla Street Fax: 02 6314252 Tel 03 7663996 F'l) 037669451 PO Bolo'. 1688 POBox 1623 Tel 026352577 Dud Metha Branch Claim s Departm ent Dubai ~t 'A. ............... '~-: Oubal - AI Nasr Plaza Budding Tel 043573060 FCI)( 043572993 • ~ r;:: \' ,.. • - . -T'-'-..\ ..,........~ t - • : .,. - ": • .,r­ •• .......i...AI ~ ~~~....,~ ." r,,'·\" · ·· ,f­ .....i.~ • " .. ~\ " " 'i'" :_,-S.! I .Y'! P,O Box 10'14 ..... ~_ I."' : ."'-' ....'""" Sharjah Bra nch St afjah Maharabl Buddin.'! Tel 06 574~o:.51 Fax J65744552 pO.Snx 24811 ...r?--- <\" -'-' o\.!"": , - ~\'"~:;~I '-'J":' .- :;\ .~.£..'J t~.:~" ":,\" ...... _..3 .... .rJ' -_~ t.#"':' ~...... • ... \,., -, r- ~ ,, - ~ ........ ..:. • r\' - • ~ "~, , -."r _ ...;...s.! ~"'" ,"", r' ::'"'' :_...si
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13. Islamic Arab Insurance Co . (Salama) and its subsidiaries Consolidated statement of profit or loss for the year ended 31 December CONTINUING OPERATIONS UNDERWRITING RESULTS Underwriting income Gross written contributions Less: reinsurance and retakaful contributions ceded Net contributions Net movement in unearned contributions Contributions earned Commission received on ceded reinsurance and retakaful Note 2016 AED’000 2015 AED’000 39 777,612 (221,218) 556,394 42,988 599,382 37,621 637,003 933,346 (213,497) 719,849 (19,995) 699,854 52,945 752,799 520,882 (105,162) 415,720 60,020 475,740 241,038 716,778 (79,775) 512,581 (146,593) 365,988 89,862 455,850 240,721 696,571 56,228 Underwriting expenses Gross claims paid Less: reinsurance and retakaful share of claims paid Net claims paid Net movement in outstanding claims and family takaful reserve Claims incurred Commission paid and other costs Net underwriting (loss) / income 39 Income from other sources Income from investments Other income 10 49,924 44,959 15,108 18,914 24,104 99,246 11 (115,876) (796) (1,653) (103,217) (137,622) (992) (27,043) (658) (67,069) (15,165) (118,382) (15,191) (12,070) (79,139) (15,597) (133,573) (94,736) (41,374) (174,947) (68,104) (162,840) (199,053) 24,106 (174,947) (171,548) 8,708 (162,840) (0.168) (0.144) (0.133) (0.087) Expenses General, administrative and other expenses Finance expenses Impairment on goodwill Provision for charitable donations Net loss before tax 12 Taxation - current Net loss after tax before policyholders’ distribution Distribution to policyholders of Company Net loss after tax and distribution to policyholders from continuing operations 36 8 DISCONTINUED OPERATIONS Loss from discontinued operations Net loss after tax and distribution to policyholders 41 Attributable to: Shareholders Non-controlling interest Loss per share (AED) 35 Loss per share (AED) - continuing operations The notes on pages 17 to 76 form an integral part of these consolidated financial statements. The independent auditors' report is set out on page 4 - 10. 11
14. Islamic Arab Insurance Co . (Salama) and its subsidiaries Consolidated statement of profit or loss and other comprehensive income for the year ended 31 December Net loss after tax and distribution to policyholders Other comprehensive loss net of income tax Items that will never be reclassified to profit or loss: Net change in revaluation of property and equipment Items that are or may be reclassified to profit or loss: Net change in fair value of available-for-sale investments Foreign exchange translation reserve Other comprehensive loss Total comprehensive loss Attributable to: Shareholders Non-controlling interest 2016 AED’000 2015 AED’000 (174,947) (162,840) 395 (7,407) (85,734) (92,746) (8,769) (36,127) (46,061) (267,693) (208,901) (252,048) (15,645) (267,693) (212,360) 3,459 (208,901) The notes on pages 17 to 76 form an integral part of these consolidated financial statements. The independent auditors' report is set out on page 4 - 10. 12 (1,165)
16. Islamic Arab Insurance Co . (Salama) and its subsidiaries Consolidated statement of cash flows for the year ended 31 December 2016 AED’000 2015 AED’000 Cash flows from operating activities Net loss after tax and distribution to policyholders (174,947) (162,840) Adjustment for: Depreciation Net movement in unearned contributions reserve Unrealised (gain) / loss on investments Unrealised loss on investment properties Amortisation of intangible assets Impairment of goodwill Share of profit from associates Dividend income Operating loss before changes in working capital 3,816 (76,413) (11,607) (5,227) 505 (8,181) (2,243) (274,297) 4,779 (66,697) 10,922 1,945 604 27,043 (2,396) (976) (187,616) Change in deposits with takaful and retakaful companies Change in contributions and takaful balance receivable Change in due from related parties Change in due to related parties Change in other assets and receivables Change in outstanding claims (net of retakaful) Change in takaful payables and other payables Change in payable to participants for unit-linked contracts Net cash flows generated from / (used in) operating activities 2,489 (18,620) 244 304 (26,247) 38,622 166,441 222,995 111,931 139,613 257,579 4,174 (97,360) (203,813) (245,431) 98,263 (234,591) Cash flows from investing activities Property and equipment-net Net movement in intangible assets Purchase of investment property Sale proceeds from sale of investment property Investment in associate Dividend income from an associate Statutory deposits Investments-net Dividends received Net cash flows (used in) / generated from investing activities 2,737 (503) (204) 993 9,715 (61,091) 2,243 (46,110) 23,453 429 79,983 (43,524) 931 (7,919) (16,472) 976 37,857 Cash flows from financing activities Bank finance-net Net movement in non-controlling interest Net cash flows generated from / (used in) financing activities (693) 1,099 406 (143,166) 3,750 (139,416) Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December (note 22) 66,227 52,603 118,830 The notes on pages 17 to 76 form an integral part of these consolidated financial statements. The independent auditors' report is set out on page 4 - 10. 14 (336,150) 388,753 52,603
17. Islamic Arab Insurance Co . (Salama) and its subsidiaries Consolidated statement of changes in equity for the year ended 31 December 2016 Attributable to the equity holders of the Company Share capital AED’000 Balance at 1 January 2016 Total comprehensive loss for the year Loss for the year Other comprehensive loss Net changes in revaluation of property and equipment Movement in foreign exchange translation reserve Movement in net change in fair value of available-for-sale investments Total other comprehensive loss Total comprehensive loss for the year Transaction with owners, recorded directly in equity Change in non-controlling interest due to capital increase Surplus revaluation reserve transferred to retained earnings Transactions with owners, recorded directly in equity Dividend paid Balance at 31 December 2016 Statutory reserve AED’000 Revaluation reserve AED’000 1,210,000 73,861 35,469 - - - --- -- 395 - -- -- - - - 395 395 Foreign exchange translation reserve AED’000 (61,610) -(46,003) - Investment fair value reserve AED’000 3,980 Treasury Accumulated stock losses AED’000 AED’000 (35,972) 959,307 74,146 (199,053) (199,053) 24,106 (174,947) 395 (46,003) (39,731) 395 (85,734) - -- -- - (7,387) -- (7,387) (7,387) - Total equity AED’000 (266,421) - (46,003) (46,003) Total AED’000 Noncontrolling interest AED’000 1,033,453 (7,387) (20) (7,407) (199,053) (52,995) (252,048) (39,751) (15,645) (92,746) (267,693) - - 3,325 - - - - 3,325 1,208 (3,325) 1,208 - 1,210,000 73,861 39,189 (107,613) (3,407) (35,972) (465,474) 710,584 (109) 56,275 (109) 766,859 The notes on pages 17 to 76 form an integral part of these consolidated financial statements. 15
18. Islamic Arab Insurance Co . (Salama) and its subsidiaries Consolidated statement of changes in equity (continued) for the year ended 31 December 2016 Attributable to the equity holders of the Company Share capital AED’000 Balance at 1 January 2015 Total comprehensive loss for the year Loss for the year Other comprehensive loss Net changes in revaluation of property and equipment Movement in foreign exchange translation reserve Movement in net change in fair value of available-for-sale investments Total other comprehensive loss Total comprehensive loss for the year Transaction with owners, recorded directly in equity Change in non-controlling interest due to capital increase Surplus revaluation reserve transferred to retained earnings Transactions with owners, recorded directly in equity Dividend paid Balance at 31 December 2015 Statutory reserve AED’000 Revaluation reserve AED’000 1,210,000 73,861 42,173 - - - --- -- -- -- - - (2,426) (2,426) - - (4,278) 1,210,000 73,861 (2,426) - 35,469 The notes on pages 17 to 76 form an integral part of these consolidated financial statements. 16 Foreign exchange translation reserve AED’000 (30,697) -(30,913) (30,913) (30,913) - (61,610) Investment fair value reserve AED’000 12,719 Treasury Accumulated stock losses AED’000 AED’000 (35,972) (99,151) - - -- -- - (8,739) -- - (8,739) (8,739) - - 3,980 - (35,972) (171,548) (171,548) 4,278 (266,421) Total AED’000 1,172,933 Noncontrolling interest AED’000 65,671 Total equity AED’000 1,238,604 (171,548) 8,708 (162,840) (2,426) (30,913) 1,261 (5,214) (1,165) (36,127) (8,739) (30) (8,769) (42,078) (213,626) (3,983) 4,725 (46,061) (208,901) - 959,307 6,718 - (2,968) 74,146 6,718 - (2,968) 1,033,453
19. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (forming part of the consolidated financial statements) 1 Legal status and activities Islamic Arab Insurance Co. (Salama) (“the Company”) is a public shareholding company, registered in the Emirate of Dubai, United Arab Emirates (UAE) and operates through various branches in the UAE. The registered office of the Company is P.O. Box 10214, Dubai, United Arab Emirates. The principal activity of the Company is the writing of all classes of general takaful and family takaful business, in accordance with Islamic Shari’ah principles and in accordance with the Articles of the Company, UAE Federal Law No 2 of 2015 for commercial companies and UAE Federal Law No. 6 of 2007, concerning regulations of insurance operations. The Company and its subsidiaries are referred to as “the Group”. Tariic Holding BSC (Tariic), a subsidiary of the Company, is an intermediate holding company in Bahrain and no commercial activities are carried out in the Kingdom of Bahrain. Details of the Company’s subsidiaries are mentioned in note 40 of these consolidated financial statements. The Group has the following principal subsidiaries which are engaged in insurance and reinsurance under Islamic Shari’ah principles: Subsidiaries Directly owned Tariic Holding Company B.S.C Misr Emirates Takaful Life Insurance Co. Salama Immobilier Through Tariic Salama Assurance Senegal Salama Assurances Algerie Egyptian Saudi Insurance Home Best Re Holding Company (discontinued operations) Group’s ownership 31 December 31 December 2015 2016 Country of incorporation 99.40% 85.00% * 84.25% 99.40% 85.00% 81.50% Kingdom of Bahrain Egypt Senegal ** 58.45% 96.98% 51.15% 57.41% 96.98% 51.15% Senegal Algeria Egypt 100% 100% Malaysia * During the year, the Company acquired all the shares of Salama Immobilier that were held by Salama Assurances Senegal, thereby increasing the holding percentage. ** During the year, Salama Assurance Senegal offered a rights issue to its shareholders. The Company acquired the options not utilised by existing shareholders, thereby increasing the holding percentage. 2 Basis of preparation a) Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board (“IASB”) and comply with applicable requirements of UAE Law. On 1 April 2015, a new UAE Federal Law No. 2 of 2015 for the Commercial Companies (“UAE Companies Law of 2015”) was issued with effective date on 1 July 2015. As per the transitional provisions of the new law, companies are to ensure compliance by 30 June 2017. The Group is in the process of adopting the new Federal Law and will be fully compliant before the transitional provisions deadline. Further, under Federal Law No 6 of 2007, relating to Establishment of Insurance Authority and Regulation of Insurance Operations, a new financial regulation for insurance companies was issued on 28 January 2015. The financial regulation provided an alignment period to the Insurance companies between one to three years from the publication of financial regulation in Public Gazzette from 29 January 2015 to align the operations to the covenants of the regulations therein. The Company is in the process of aligning the operations with the requirement of the regulations and will be fully aligned before the deadline for alignment period. 17
20. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 2 Basis of preparation (continued) b) Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except for the following which are stated at fair value : i) financial instruments at fair value through profit and loss ("FVTPL") and unit linked contracts; ii) available-for-sale ("AFS") financial assets; and iii) investment properties. c) Functional and presentation currency These consolidated financial statements are presented in UAE Dirham (AED), which is the functional currency of the Company. Except as otherwise indicated, financial information presented in UAE Dirham has been rounded to the nearest thousand. d) Critical accounting estimates and judgment in applying accounting policies The preparation of consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgments are continually evaluated and based on historical experience and the factors including expectations of future events that are believed to be reasonable under the circumstances. Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements are included in the following notes: - Note 15: Investment properties - Note 18: Investments - Note 23: Outstanding claims and retakafuls' share of outstanding claims Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future period affected. In particular, information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements are described below: The ultimate liability arising from claims made under takaful and retakaful contracts The estimation of the ultimate liability arising from claims made under takaful contracts is the Group’s most critical accounting estimate. There are several sources of uncertainty that need to be considered in estimating the liability that the Group will ultimately pay for such claims. The provision for claims incurred but not reported (“IBNR”) is an estimation of claims which are expected to be reported subsequent to the date of consolidated statement of financial position, for which the insured event has occurred prior to the date of consolidated statement of financial position. 18
21. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 2 Basis of preparation (continued) d) Critical accounting estimates and judgment in applying accounting policies (continued) The ultimate liability arising from claims made under takaful and retakaful contracts (continued) Information about assumptions and estimation of uncertainties that have a significant risk of resulting in a material adjustment within the next financial year relating to outstanding claims and family takaful reserves are included in note 23 to the consolidated financial statements. Impairment losses on contributions and takaful balance receivables The Group assesses receivables that are individually significant and receivables included in a group of financial assets with similar credit risk characteristics for impairment. Receivables that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. This assessment of impairment requires judgment. In making this judgment, the Group evaluates credit risk characteristics that consider industry, past-due status and an estimation of future cash flows being indicative of the ability to pay all amounts due as per the contractual terms. Impairment losses on available-for-sale investments The Group determines that available-for-sale quoted and unquoted equity securities are impaired when there has been a significant or prolonged decline in the fair value below its cost. For available-for-sale investments where fair values are not available, the Group makes an assessment of whether there is objective evidence of impairment for each investment by assessment of financial and other operating and economic indicators. Impairment is recognised if the estimated recoverability assumed is assessed to be below the cost of the investment. In making this judgment, the Group evaluates credit risk characteristics that consider industry, past due status and an estimation of future cash flows being indicative of the ability to pay all amounts due as per the contractual terms. Deferred policy acquisition costs The amount of acquisition costs to be deferred is dependent on judgments as to which issuance costs are directly related to and vary with the acquisition. Acquisition cost on long-term Takaful contracts without fixed terms with investment participation feature are amortised over the expected total life of the contract group as a constant percentage of estimated gross profit margins (including investment income) arising from these contracts in accordance with the accounting policy stated in note 3(b). The pattern of expected profit margins is based on historical and anticipated future experiences which consider assumptions, such as expenses, lapse rates or investment income and are updated at the end of each accounting period. e) Changes in accounting policies A number of new standards, amendments to standards and interpretations that are issued and are effective for accounting periods starting 1 January 2016 have been applied. The application of these revised IFRSs has not had any material impact on the amounts reported for the current and prior periods: • Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38); • Annual Improvements to IFRSs 2012–2014 Cycle – various standards; and • Disclosure Initiative (Amendments to IAS 1) 3 Significant accounting policies The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, except for the change in accounting policy stated in note 2 (e). 19
22. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 3 Significant accounting policies (continued) Business combinations Business combinations are accounted for using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in the consolidated statement of profit or loss immediately. Transaction costs are expensed as incurred, except if they are related to the issue of debt or equity securities. Subsidiaries Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. The financial statements of the subsidiary are included in the Group’s consolidated financial statements from the date that control commences until the date that control ceases. Non controlling interest in the equity and results of the entities that are controlled by the Group are shown separately as a part of consolidated statements of changes in shareholders equity in the Group’s consolidated financial statements. Any contribution or discounts on subsequent acquisition, after control is obtained, of equity instruments from (or sale of equity instruments to) non controlling interest is recognised directly in consolidated statement of shareholders’ equity. Investment in associates (equity accounted investees) Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Interest in associates are accounted for using the equity method. They are initially recognised at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statement include the Group's share of the profit or loss and OCI of equity accounted investees, until the date on which significant influence or joint control ceases. When the Group’s share of losses exceeds its interest in an associate, the carrying amount of investment is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of an associate. Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised gains arising from intra-group transactions, are eliminated in preparing the Group’s consolidated financial statements. Unrealised gains arising from transactions with associates are eliminated, wherever practicable, to the extent of the Group’s interest in the enterprise. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Acquisition from entities under common control Business combinations arising from transfers of interests in entities that are under the control of the shareholder that controls the Group are accounted for as if the acquisition had occurred at the beginning of the earliest comparative year presented or, if later, at the date that common control was established. The assets and liabilities acquired are recognised at the carrying amounts recognised previously in the Group controlling shareholder’s consolidated financial statements. The components of equity of the acquired entities are added to the same components within Group equity and any gain/loss arising is recognised directly in equity. Loss of control Upon the loss of control, the Group derecognises the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in profit or loss. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently it is accounted for as an equityaccounted investee or in accordance with the Group’s accounting policy for financial instruments depending on the level of influence retained. 20
23. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 3 Significant accounting policies (continued) a) Takaful contracts i. Classification The Group issues contracts that transfer either takaful risk or both takaful and financial risks. The Group does not issue contracts that transfer only financial risks. Contracts under which the Group accepts significant takaful risk from another party (the policyholders') by agreeing to compensate the policyholders' if a specified uncertain future event (the insured event) adversely affects the policyholder are classified as takaful contracts. Takaful risk is significant if an insured event could cause the Group to pay significant additional benefits due to happening of the insured event compared to its non happening. Takaful contracts may also transfer some financial risk. Financial risk is the risk of a possible future change in one or more of a specified profit rate, security price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract. Contracts where takaful risk is not significant are classified as investment contracts. Once a contract is classified as a takaful contract it remains classified as a takaful contract until all rights and obligations are extinguished or expire. ii. Recognition and measurement Takaful contracts are classified into three main categories, depending on the duration of risk and whether or not the terms and conditions are fixed. a) General Takaful contracts Gross written contributions, in respect of annual policies, are recognised in the consolidated statement of profit or loss at policy inception. In respect to policies with a term of more than one year, the contributions are spread over the tenure of the policies on a straight line basis, and the unexpired portion of such contributions are included under “unearned contributions” in the consolidated statement of financial position. b) Family Takaful contracts These contracts relate to human life events for example death or survival, bodily injury etc. For short term contracts, normally with group customers, the contributions are recognised when due. For long term contracts, normally with individual customers, the contributions are booked on receipt. c) Investment featured unit-linked contracts A unit-linked takaful contract is a takaful contract linking payments on the contract to units of investment funds administrated by the Group with the contributions received from the plan holder. These funds are administrated by the Group on behalf of plan holders in fiduciary trust as a Mudarib (Manager). In addition Group manages Tabarru fund on behalf of plan holders to meet the obligations arising out of takaful operations. The Group has no recourse to the assets of Tabarru fund. An investment charge based on a certain percentage of value of fund is charged as fee. The liability towards the plan holder is linked to the performance of the underlying assets of these funds. This embedded derivative meets the definition of a takaful contract. Since all the liabilities arising from the embedded derivative are already measured at fair value and since all the investments on behalf of plan holders are classified as fair value through profit and loss, the Group does not account embedded derivatives separately. In case of a claim, the amount paid is the higher of the sum assured or the unit value. The liability is calculated through actuarial valuation based on the present value of expected benefits to plan holders. Where the Tabarru Fund is insufficient to meet the liabilities, the shareholders shall grant profit free loan to the fund to meet its liabilities under the contracts held with participants. This loan is called Qard-e-Hasan. The Qard-eHasan is repaid to shareholders from the future surplus of Tabarru Fund. 21
24. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 3 Significant accounting policies (continued) a) Takaful contracts (continued) ii. Recognition and measurement (continued) c) Investment featured unit-linked contracts (continued) The contribution after allocation to unit fund/investment fund of plan holder is called Takaful Donation and is taken to Tabarru fund from where Wakala fee is paid to shareholders. Takaful Donation is based on appropriate rates of mortality and morbidity. The Tabarru fund is a collective pool established, invested and managed in accordance with Sharia Principles with the purpose of providing benefits on the lives of covered members (plan holders) and for the repayment of Qard-e-Hasan (if applicable). The long term individual life contracts contain investment participation feature. A surplus may arise in Tabaru fund after accounting for the claims, relevant expenses, investment returns and reserves. The surplus is available for the distribution to eligible participants provided there is net surplus in the Tabarru Fund in respect of the relevant year. The distribution is at the discretion of the Board of Directors. This contractual right is supplement to the other benefits mentioned in the contract. These takaful contracts insure human life events (for example, death or survival) over a long duration. However, Takaful contributions are recognised directly as liabilities. These liabilities are increased by fair value movement of underlying investments / unit prices and are decreased by policy administration fees, mortality and surrender charges and withdrawals, if any. The liability for these contracts includes any amounts necessary to compensate the Group for services to be performed over future periods. This is the case for contracts where the policy administration charges are higher in the initial years than in subsequent years. The mortality charges deducted in each period from the contract holders as a group are considered adequate to cover the expected total death benefit claims in excess of the contract account balances in each period; no additional liability is therefore established for these claims. iii. Unearned premium reserve The unearned premium considered in the unearned contributions reserve comprise the estimated proportion of the gross premiums written which relates to the periods of insurance subsequent to the consolidated statement of financial position date. UPR is calculated using the 1/365 method except for marine business. The UPR for marine is recognised as fixed proportion of the written premiums as required in the financial regulation. The rate at which the premium is earned is deemed to increase at the same rate at which the risk faced increases over the lifetime of the policy. Unearned premiums for Family Takaful business are considered by the Group's actuary in the calculation for family takaful reserve. iv. Claims Claims incurred comprise the settlement and the internal and external handling costs paid and changes in the provisions for outstanding claims arising from events occurring during the financial period. Where applicable, deductions are made for salvage and their recoveries. Claims outstanding comprise provisions for the Group’s estimate of the ultimate cost of settling all claims incurred but unpaid at the reporting date whether reported or not, and related internal and external claims handling expenses and reduced by expected salvage and other recoveries. Claims outstanding are assessed by reviewing individual reported claims. Provisions for claims outstanding are not discounted. Adjustments to claims provisions established in prior periods are reflected in the consolidated financial statements of the period in which the adjustments are made. The methods used, and the estimates made, are reviewed regularly. v. Gross claims paid Gross claims paid are recognised in the consolidated statement of profit or loss when the claim amount payable to policyholders' and third parties are determined as per the terms of the takaful contracts. 22
25. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 3 Significant accounting policies (continued) a) Takaful contracts (continued) vi. Claims recovered Claims recovered include amounts recovered from retakaful companies in respect of the gross claims paid by the Group, in accordance with the retakaful contracts held by the Group. It also includes salvage and other claims recoveries. Gross outstanding and IBNR claims Gross outstanding claims comprise the estimated costs of claims incurred but not settled at the consolidated financial position date. Provisions for reported claims not paid as at the date of consolidated statement of financial position are made on the basis of individual case estimates. This provision is based on the estimate of the loss, which will eventually be payable on each unpaid claim, established by the management in the light of currently available information and past experience. An additional net provision is also made for any claims incurred but not reported (“IBNR”) at the date of consolidated statement of financial position on the basis of management estimates. The basis of estimating outstanding claims and IBNR are detailed in note 23. The retakaful share of the gross outstanding claims is estimated and shown separately. vii. Contribution deficiency reserve Provision is made for contribution deficiency arising from general takaful contracts where the expected value of claims and expenses attributable to the unexpired periods of policies in force at the consolidated financial position date exceeds the unearned contributions provision and already recorded claim liabilities in relation to such policies. The provision for contribution deficiency is calculated by reference to classes of business which are managed together, after taking into account the future investment return on investments held to back the unearned contributions and claims provisions. viii. Retakaful The Group cedes retakaful in the normal course of business for the purpose of limiting its net loss potential through the diversification of its risks. Assets, liabilities and income and expense arising from ceded retakaful contracts are presented separately from the assets, liabilities, income and expense from the related takaful contracts because the retakaful arrangements do not relieve the Group from its direct obligations to its policyholders. Amounts due to and from retakaful operators are accounted for in a manner consistent with the related contributions is included in retakaful assets. Retakaful assets are assessed for impairment at each consolidated financial position date. A retakaful asset is deemed impaired if there is objective evidence, as a result of an event that occurred after its initial recognition, that the Group may not recover all amounts due, and that event has a reliably measurable impact on the amounts that the Group will receive from the reinsurer. Impairment losses on retakaful assets are recognised in consolidated statement of profit or loss in the year in which they are incurred. Profit commission in respect of retakaful contracts is recognised on an accrual basis. 23
26. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 3 Significant accounting policies (continued) a) Takaful contracts (continued) ix. Deferred commission cost For short term takaful contracts, the deferred commission cost asset represents the proportion of acquisition costs which corresponds to the proportion of gross contributions written that is unearned at the date of consolidated statement of financial position and becomes part of unearned contribution reserves. For individual family takaful and long term unit-linked takaful contracts, commission relating to takaful features amortised systematically over the average policy life. Commission that relates to investments feature has been allocated to Participants on prorata basis. x. Takaful receivables and payables Amounts due from and to policyholders, agents, reinsurers and retakaful companies and liability towards Participant Investment Account are financial instruments and are included in takaful receivables and payables, and not in takaful contract provisions or retakaful assets. xi. Family takaful reserves The risk reserves are determined by the independent actuarial valuation of future policy benefits. Actuarial assumptions include a margin for adverse deviation and generally vary by type of policy, year of issue and policy duration. Mortality and withdrawal rate assumptions are based on experience. Adjustments to the balance of fund are affected by charges or credits to income. xii. Salvage and subrogation reimbursements Some takaful contracts permit the Group to sell property (usually damaged) acquired in settling a claim (salvage). The Group may also have the right to pursue third parties for payment of some or all costs (subrogation). Estimates of salvage recoveries and subrogation reimbursements are recognised as an allowance in the measurement of the takaful liability for claims. b) Revenue (other than takaful revenue) Revenue (other than takaful revenue) comprises the following: i) Fee and commission income Fee and commissions received or receivable which do not require the Group to render further service are recognised as revenue by the Group on the effective commencement or renewal dates of the related policies. ii) Investment income Investment income comprises income from financial assets, rental income from investment properties and marked to market gains/losses on investment properties. Income from financial assets comprises profit and dividend income, net gains/losses on financial assets classified at fair value through profit or loss, and realised gains/losses on financial assets. Profit income is recognised on a time proportion basis using effective yield basis. Dividend income is recognised when the right to receive dividend is established. Usually this is the ex-dividend date for equity securities. Basis of recognition of net gains/losses on financial assets classified at fair value through profit or loss and realised gains on other financial assets are described in note 3 (d). 24
27. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 3 Significant accounting policies (continued) b) Revenue (other than takaful revenue) (continued) ii) Investment income (continued) Rental income from investment properties under operating leases is recognised in the consolidated statement of profit or loss on a straight-line basis over the term of each lease. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease. Fair value gains/losses on investment properties are included in the consolidated statement of profit or loss in the period these gains are determined. Details of valuations techniques and significant unobservable inputs used during the year are included in note 15. c) Financial instruments (financials assets and financial liabilities) Non-derivative financial instruments Non-derivative financial instruments comprise investments in equity and debt securities, takaful and other receivables, cash and cash equivalents, amount due to and from related party, deposits with takaful and retakaful companies, investment contract liabilities, bank finance, family takaful reserve, takaful and other payables and other liabilities. i) Recognition, derecognition and initial measurement Non-derivative financial instruments are measured initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. Financial instruments are initially recognised on the trade date when the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the Group’s contractual rights to the cash flows from the financial assets expire or if the Group transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset. Financial liabilities are derecognised if the Group’s contractual obligations specified in the contract expire or are discharged or cancelled. Regular way purchases and sales of financial assets are recognised and derecognised, as applicable, on the trade date, i.e. the date that the Group commits itself to purchase or sell the asset. ii) Categories of financial instruments Financial instruments at fair value through profit or loss An instrument is classified as at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Subsequent to initial measurement, financial instruments at fair value through profit or loss are measured at fair value, with fair value changes recognised in consolidated statement of profit or loss. Net changes in the fair value of financial assets classified as at fair value through profit or loss includes profit income and any dividends received. 25
28. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 3 Significant accounting policies (continued) c) Financial instruments (continued) Non-derivative financial instruments (continued) ii) Categories of financial instruments (continued) All financial assets held by the Group in respect of its long term business funds are designated by the Group on initial recognition at fair value through profit or loss. This designation eliminates or significantly reduces a measurement inconsistency that would otherwise arise if these assets were not measured at fair value and the changes in fair value were not recognised in profit or loss. Held-to-maturity investments If the Group has the positive intent and ability to hold debt securities to maturity, and these debt securities have not been designated at fair value through profit or loss, then they are classified as held-to-maturity. Held-to-maturity investments are measured at amortised cost using the effective interest method, less any impairment losses. Available-for-sale financial assets This category is used for financial assets that are not classified as at fair value through profit or loss or held-tomaturity investments. Available-for-sale investments are initially measured at cost, being the fair value, including transaction costs, and are subsequently re-measured to fair value. Unrealised gains and losses arising from changes in the fair values of AFS investments are recognised in consolidated statement of other comprehensive income and recognised in a reserve as a separate component of equity. In the event of sale, disposal, collection or impairment, the cumulative gains and losses recognised in equity are transferred to the profit or loss. Purchases and sales of AFS investments are accounted for on the trade date. AFS investments which have no quoted market price or other appropriate methods from which to derive reliable fair values are carried at cost less impairment. Other financial assets Other non-derivative financial assets, such as cash and cash equivalents and takaful and other receivables are measured at amortised cost using the effective interest method, less any impairment losses. iii) Offsetting Financial assets and financial liabilities are set off and the net amount presented in the consolidated statement of financial position when, and only when, the Group has a legal right to set off the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted by accounting standards. Gains and losses arising from a group of similar transactions are reported on a net basis. iv) Fair value measurement principle 'Fair value' is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair value of a liability reflects its non-performance risk. When available, the Group measures the fair value of an instrument using the quoted prices in an active market for that instrument. A market is regarded as active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions on an arm’s length basis. 26
29. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 3 Significant accounting policies (continued) c) Financial instruments (continued) Non-derivative financial instruments (continued) iv) Fair value measurement principle If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction. The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price i.e. the fair value of the consideration given or received. If the Group determines that the fair value at initial recognition differs from the transaction price and the fair value is evidenced neither by a quoted price in an active market for an identical asset or liability nor based on a valuation technique that uses only data from observable markets, then the financial instrument is initially measured at fair value, adjusted to defer the difference between the fair value at initial recognition and the transaction price. Subsequently, that difference is recognised in the consolidated statement of profit or loss on an appropriate basis over the life of the instrument but no later than when the valuation is wholly supported by observable market data or the transaction is closed out. If an asset or a liability measured at fair value has a bid price and an ask price, then the Group measures assets and long positions at a bid price and liabilities and short positions at an ask price. Portfolios of financial assets and financial liabilities that are exposed to market risk and credit risk that are managed by the Group on the basis of the net exposure to either market or credit risk are measured on the basis of a price that would be received to sell a net long position (or paid to transfer a net short position) for a particular risk exposure. Those portfolio-level adjustments are allocated to the individual assets and liabilities on the basis of the relative risk adjustment of each of the individual instruments in the portfolio. The Group recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the change has occurred. v) Identification and measurement of impairment Impairment of financial assets carried at amortised cost The Group assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets carried at amortised cost are impaired. A financial asset or group of financial assets are impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset, and that the loss event has an impact on the future cash flows relating to the asset that can be estimated reliably. Objective evidence that financial assets are impaired can include significant financial difficulty of the borrower or issuer, default or delinquency by a borrower, restructuring of an amount due to the Group on terms that the Group would not otherwise consider, indication that a borrower or issuer will enter bankruptcy, the disappearance of an active market for a security, or other observable data relating to a Group of assets such as adverse change in the payment status of borrowers or issuers, or economic conditions that correlate with defaults in the Group. 27
30. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 3 Significant accounting policies (continued) c) Financial instruments (continued) Non-derivative financial instruments (continued) v) Identification and measurement of impairment (continued) Impairment of loans and receivables The Group considers evidence of impairment for loans and receivables at both a specific asset and collective level. All individually significant receivables are assessed for specific impairment. All individually significant loans and receivables found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Loans and receivables that are not individually significant are collectively assessed for impairment by grouping together loans and receivables with similar risk characteristics. At each reporting date, the Group assesses on a case-by-case basis whether there is any objective evidence that an asset is impaired. Impairment losses on assets carried at amortised cost are measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the asset’s original effective interest rate. When a loan is uncollectible, it is written off against the related allowance for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off and/or any event resulting in a reduction in impairment loss, decreases the amount of the provision for loan impairment in the consolidated statement of profit and loss. Impairment losses are recognised in the consolidated statement of profit and loss and reflected in an allowance account against loans and advances. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through the consolidated statement of profit and loss. Impairment of available for sale financial assets Impairment losses on available for sale financial assets are recognised by reclassifying the losses accumulated in the fair value reserve to the consolidated statement of profit or loss. The amount reclassified is the difference between the acquisition cost (net of any principal repayment and amortisation) and the current fair value, less any impairment loss previously recognised in the consolidated statement of profit or loss. If the fair value of an impaired available for sale debt security subsequently increases and the increase can be related to an event occurring after the impairment loss was recognised, then the impairment loss is reversed through the consolidated statement of profit or loss; otherwise, it is reversed through the consolidated statement of profit or loss and other comprehensive income. Any subsequent recovery in the fair value of an impaired available for sale equity securities is always recognised in the consolidated statement of profit or loss and other comprehensive income. vi) Payable to Participants for unit-linked contracts Payable to unit holder is classified as financial liability, which is designated as fair value through profit or loss, upon initial recognition. Subsequent to initial measurement, financial liabilities fair value through profit or loss are measured at fair value and any fair value change are recognised in consolidated statement of profit or loss. vii) Other financial instruments Other financial liabilities include amounts payable in the future to agents and intermediaries in respect of investment contracts issued by the Group. Payments are made on an annual basis on the anniversary of the inception of a contract if a contract has not been surrendered at that date. 28
31. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 3 Significant accounting policies (continued) c) Financial instruments (continued) Non-derivative financial instruments (continued) vii) Other financial instruments (continued) These financial liabilities are measured at fair value on initial recognition. Fair value is determined by discounting the present value of the expected future payments at the discount rate that reflects current market assessment of the time value of money for a liability of equivalent average duration. Subsequent to initial recognition these financial liabilities are stated at amortised cost using the yield basis. d) Investment properties Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Investment property is measured at cost on initial recognition and subsequently at fair value with any change therein recognised in consolidated statement of profit or loss. The Group determines fair value on the basis of valuation provided by an independent valuer who holds a recognised and relevant professional qualification and has recent experience in the location and category of the investment property being valued. Cost includes expenditure that is directly attributable to the acquisition of the investment property. The cost of self constructed investment property includes the cost of materials and direct labour, any other costs directly attributable to bringing the investment property to a working condition for their intended use and capitalised borrowing costs. Any gain or loss on disposal of an investment property (calculated as the difference between the net proceeds from disposal and the carrying amount of the item) is recognised in consolidated statement of profit or loss. When an investment property that was previously classified as property, plant and equipment is sold, any related amount included in the revaluation reserve is transferred to retained earnings. When the use of a property changes such that it is reclassified as property, plant and equipment, its fair value at the date of reclassification becomes its cost for subsequent accounting. e) Foreign currency transactions Transactions denominated in foreign currencies are translated to AED at the spot exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated to AED at the spot exchange rates ruling at the date of consolidated statement of financial position. Non-monetary assets and liabilities denominated in foreign currencies that are stated at historical cost are translated to AED at the foreign exchange rates ruling at the date of the transaction. Foreign exchange differences arising on translation are recognised in the consolidated statement of profit or loss. The assets and liabilities of foreign subsidiaries and the equity of associates are translated at the rate of exchange ruling at the reporting date. The consolidated statements of profit or loss and comprehensive income of foreign subsidiaries and the results of associates are translated at the average exchange rates for the year. The exchange differences on the retranslation are taken directly to the consolidated statement of profit or loss and other comprehensive income. 29
32. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 3 Significant accounting policies (continued) f) Share capital Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to issue of ordinary shares and share options are recognised as a deduction from equity, net of tax effects. Treasury shares When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs, is recognised as a deduction from equity. Repurchased shares are classified as treasury shares and are presented as a deduction from total equity in consolidated statement of changes in equity. g) Property and equipment Property and equipment Property and equipment are stated at cost less accumulated depreciation and impairment losses, if any except for land and building which are stated at revalued amount. Capital work in progress Capital work in progress is stated at cost until the construction is complete. Upon the completion of construction, the cost of such assets together with the cost directly attributable to construction, including capitalised borrowing costs are transferred to the respective class of asset. Depreciation is charged if use of the asset commences before construction is complete. Subsequent expenditure Expenditure incurred to replace a component of an item of property and equipment that is accounted for separately is capitalised. All other expenditure is recognised in the consolidated statement of profit or loss as an expense. Depreciation Depreciation is charged to the consolidated statement of profit or loss on a straight line basis over the estimated useful lives of each part of an item of property and equipment. Land is not depreciated. The depreciation methods, useful lives and residual value of property and equipment are reassessed annually. The estimated useful lives of these assets (except for land) are 4-10 years. h) Employee terminal benefits Defined benefit plan The Group provides end of service benefits to its expatriate employees. The entitlement to these benefits is based upon the employees’ salary and length of service, subject to the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment. The management considers that the difference between the liability as calculated using an actuarial method would not be materially different from the provision carried in the financial statements. With respect to national employees, the Group makes contributions to local takaful schemes as per the local laws calculated as a percentage of the employees’ salaries. The Group’s obligations are limited to these contributions, which are expensed when due. 30
33. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 3 Significant accounting policies (continued) i) Cash and cash equivalents Cash and cash equivalents comprise cash in hand, current accounts with banks and bank deposits with maturities of less than three months, net of revolving bank finance and excluding deposits under lien. j) Provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost. k) Operating lease Leases in terms of which the substantial risk and rewards of ownership are retained by the lessor are classified as operating leases. Operating lease rentals and payments are recognised as an expense in the consolidated statement of profit or loss on a straight-line basis over the lease term. l) Intangible assets (i) Goodwill Goodwill arises on the acquisition of subsidiary. Goodwill represents the excess of the cost of the acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree. When the excess is negative (negative goodwill), it is recognised directly in statement of profit or loss. Acquisitions of non controlling interest Goodwill arising on the acquisition of a non controlling interest in a subsidiary represents the excess of the cost of the additional investment over the carrying amount of the net assets acquired at the date of exchange. Subsequent measurement Goodwill is measured at cost less accumulated impairment losses. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment. Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. (ii) Software Intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses. Amortisation is charged to the statement of profit or loss on a straight-line basis over the estimated useful lives of intangible assets. Intangible assets comprise of software costs, which are amortised over a period of 3-5 years. Expenditure on internally generated intangible assets is recognised in the consolidated statement of profit or loss as an expense as incurred. m) Impairment of non-financial assets At each reporting date, the Group reviews the carrying amounts of its non-financial assets to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. n) Income tax The Company is not subject to any taxes on profits in the UAE. Taxation on foreign operations of the subsidiaries is provided for in accordance with fiscal regulations applicable in each territory. 31
34. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 3 Significant accounting policies (continued) o) Policyholders’ fund Any deficit in the policyholders’ fund is financed by the shareholders through Qard-e-Hasan as per their undertaking. The Group maintains a full provision against such balances (refer note 30). p) Underwriting income attributable to policyholders and shareholders As stated in note 1, the Group operates in accordance with Islamic Shari’ah principles. As a result, the net underwriting income from the operations of the Group is attributable to policyholders in accordance with the terms and conditions of takaful contracts acquired by the policyholder which stipulates that the insured, on taking out this policy from the Group becomes entitled to participate in the contributions pool with insured parties in the class of takaful on cooperative (mutual basis). The relationship of the insured with the Group is determined particularly as to his share in the surplus net of management expenses, liabilities for claims and necessary reserves, by the Board of Directors of the Group for the class of takaful at the end of fiscal year of the Group. The Group undertakes to pay such share to the insured in the net profits in accordance with the resolution of the Board of Directors of the Company after the close of fiscal year of the Group. However, the net underwriting income from the operations of subsidiaries is attributable to the shareholders in accordance with the regulations prevailing in the jurisdiction of each subsidiary. Therefore, the Group maintains separate accounts for takaful operations on behalf of the policyholders. q) Earnings per share The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise convertible notes and share options granted to employees. r) Operating segment An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components, whose operating results are reviewed regularly by the Group Management Committee (being the chief operating decision maker) to make decisions about resources allocated to each segment and assess its performance, and for which discrete financial information is available. s) Determination of fair values A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and / or disclosure purposes based on the following methods. Where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. i) Property and equipment The fair value of property and equipment, where relevant is based on market values. The market value of property is the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. 32
35. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 3 Significant accounting policies (continued) s) Determination of fair values (continued) ii) Investments in equity and debt securities The fair value of financial assets at fair value through profit or loss, held-to-maturity investments and available-forsale financial assets is determined by reference to their quoted bid price at the reporting date. The fair value of heldto-maturity investments is determined for disclosure purposes only. iii) Trade and other receivables The fair value of trade and other receivables, excluding construction work in progress, is estimated as the present value of future cash flows, discounted at the market rate of profit at the reporting date. iv) Non-derivative financial liabilities Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and profit cash flows, discounted at the market rate of profit at the reporting date. In respect of the liability component of convertible notes, if any, the market rate of profit is determined by reference to similar liabilities that do not have a conversion option. t) Liability adequacy test At each statement of financial position date, liability adequacy tests are performed to ensure the adequacy of the contract liabilities using current estimates of future cash flows under takaful contracts. In performing these, current best estimates of future contractual cash flows and claims handling and administration expenses, as well as investment income from the assets supporting such liabilities are used. Any deficiency in the carrying amounts is immediately charged to the statement of profit or loss for takaful operations by establishing a provision for losses arising from liability adequacy tests (the unexpired risk provision). Where the liability adequacy test requires the adoption of new best estimate assumptions, such assumptions (without margins for adverse deviation) are used for the subsequent measurement of these liabilities. u) New standards and interpretations not yet effective A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2016 and have not been applied in preparing these financial statements. Those which may be relevant to the Group are set out below. The Group does not plan to adopt these standards early. Accounting standard Description Effective date IFRS 15 IFRS 9 IFRS 16 Revenue from Contracts with Customers Financial Instruments Leases 1 January 2018 1 January 2018 1 January 2019 IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. The Group is in the process of evaluating the potential impact of this standard on it's financial statement resulting from application of this IFRS 15. 33
36. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 3 Significant accounting policies (continued) u) New standards and interpretations not yet effective (continued) IFRS 9, published in July 2014, replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial instruments, including a new expected credit loss model for calculating impairment on financial assets, and the new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. The Group has commenced the process of evaluating the potential effect of this standard. Given the nature of the Group's operations, this standard is expected to have a limited pervasive impact on the Group's consolidated financial statements. IFRS 16 introduces a single, on-balance lease sheet accounting model for lessees. A lessee recognises a right-ofuse asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are optional exemptions for short-term leases and leases of low value items. Lessor accounting remains similar to the current standard - i.e. lessors continue to classify leases as finance or operating leases. 4 Risk management The Group issues contracts that transfer either insurance risk or both insurance and financial risks. The Group does not issue contracts that transfer only financial risk. This section summarises these risks and the way the Group manages them. a) Introduction and overview Governance framework The primary objective of the Group’s risk and financial management framework is to protect the Group’s shareholders from events that hinder the sustainable achievement of the set financial performance objectives. Key management recognises the critical importance of having efficient and effective risk management systems in place. The Group is in the phase of establishing a risk management function with clear terms of reference from the Board of Directors, its committees and the associated executive management committees. Capital management framework The Group has an internal risk management framework for identifying risks to which each of its business units and the Group as a whole are exposed, quantifying their impact on economic capital. The internal framework estimates indicate how much capital is needed to mitigate the risk of insolvency to a selected remote level of risk applied to a number of tests (both financial and non-financial) on the capital position of the business. Regulatory framework Regulators are primarily interested in protecting the rights of the policyholders and monitor them closely to ensure that the Group is satisfactorily managing affairs for their benefit. At the same time, the regulators are also interested in ensuring that the Group maintains an appropriate solvency position to meet unforeseen liabilities arising from economic shocks or natural disasters. 34
37. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 4 Risk management (continued) a) Introduction and overview (continued) Regulatory framework (continued) The operations of the Group are also subject to regulatory requirements within the UAE. Such regulations not only prescribe approval and monitoring of activities, but also impose certain restrictive provisions to minimise the risk of default and insolvency on the part of the takaful companies to meet unforeseen liabilities as these arise. Asset liability management (ALM) framework Financial risks arise from open positions in profit rate, currency and equity products, all of which are exposed to general and specific market movements. The main risk that the Group faces due to the nature of its investments and liabilities is the equity price risk. The Group manages these positions within an ALM framework that has been developed to achieve long-term investment returns in excess of its obligations under takaful and investment contracts. The Group’s ALM framework is also integrated with the management of the financial risks associated with the Group’s other financial assets and liabilities not directly associated with takaful and investment liabilities. The Group’s ALM framework also forms an integral part of the takaful risk management policy, to ensure in each period sufficient cash flow is available to meet liabilities arising from takaful and investment contracts. b) Takaful risk Takaful risk is where the Group agrees to indemnify the insured parties against happening of unforeseen future insured events. The frequency and severity of claims are the main risk factors. As per the practices adopted by the Group, actual claim amounts can vary marginally compared to the outstanding claim reserves but are not expected to have a material impact. Frequency and severity of claims The frequency and severity of claims can be affected by several factors. The Group underwrites property, engineering, motor, miscellaneous accident, marines and personal accident classes. These classes of takaful are generally regarded as short-term takaful contracts where claims are normally intimated and settled within a short time span. This helps to mitigate takaful risk. Property For property takaful contracts, the main perils are fire damage and other allied perils and business interruption resulting there from. These contracts are underwritten either on replacement value or indemnity basis with appropriate values for the interest insured. The cost of rebuilding or repairing the damaged properties, the time taken to reinstate the operations to its pre-loss position in the case of business interruption and the basis of takaful are the main factors that influence the level of claims. 35
38. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 4 Risk management (continued) b) Takaful risk (continued) Engineering For engineering takaful contracts, the main elements of risks are loss or damage to insured project works and resultant third party liabilities, loss or damage to insured plants, machinery and equipment and resultant business interruption losses. The extent of the loss or damage is the main factor that influences the level of claims. Motor For motor takaful contracts, the main elements of risks are claims arising out of death and bodily injury and damage to third party properties as well as that of insured vehicles. The potential court awards for death and bodily injury and the extent of damage to properties are the key factors that influence the level of claims. Miscellaneous accident For miscellaneous accident classes of takaful such as loss of money, infidelity of employees, personal accident, workmen’s compensation, travel, general third party liability and professional indemnity are underwritten. The extent of loss or damage and the potential court awards for liability classes are the main factors that influence the level of claims. Marine In marine takaful the main risk elements are loss or damage to insured cargo and hull due to various mishaps resulting in the total or partial loss claims. The extent of the loss or damage is the main factor that influences the level of claims. Family takaful contracts Underwriting is managed at each business unit through a dedicated underwriting department, with formal underwriting limits and appropriate training and development of underwriting staff. The underwriting policy is clearly documented, setting out risks which are unacceptable and the terms applicable for non-standard risks. Health selection is part of the Group’s underwriting procedures, whereby contributions are charged to reflect the health condition and family medical history of the applicants. Pricing is based on assumptions, such as mortality and persistency, which consider past experience and current trends. Contracts including specific risks and guarantees are tested for profitability according to predefined procedures before approval. Products are reviewed by the business units on an annual basis to confirm, or otherwise, that pricing assumptions remain appropriate. Analysis is performed on earnings and liability movements to understand the source of any material variation in actual results from what was expected. This confirms the appropriateness of assumptions used in underwriting and pricing. 36
39. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 4 Risk management (continued) b) Takaful risk (continued) Retakaful risk In line with other takaful and retakaful companies, in order to minimise net loss exposure arising from large claims, the Group, in the normal course of business, enters into agreements with other parties for retakaful purposes. Such retakaful arrangement provides for greater diversification of business, allow management to control exposure to potential losses arising from large risks, and provide additional capacity for growth. To minimise its exposure to significant losses from reinsurers’ insolvencies, the Group 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. Assets, liabilities, income and expense arising from ceded reinsurance contracts are presented separately from assets, liabilities, income and expense from the related insurance contract because the retakaful ceded contracts do not relieve the Group from its obligations and as a result the Group remains liable for the portion of outstanding claims reinsured to the extent that the reinsurer fails to meet the obligations under the retakaful agreements. Concentration of takaful risk The Group has certain single takaful contracts which it considers as risks of high severity but very low frequency. The Group cedes substantial part of these risks and its net exposure on any one single event is limited to AED 5 million (2015: AED 5 million ). Terms and conditions of takaful contracts Takaful is based on uncertainty of event. As such the terms and conditions of takaful contracts varies but are normally based on the international guidance and policy wordings as followed by all takaful companies in the market. Normally a takaful contract contains the coverage of the subject of takaful, the exclusions and obligations of the insured and the insurers. Deviations are reported forthwith to the insurer by the insured and any accident event to be reported immediately. Long tail business is generally that where the time period to ultimately finalise and settle claims could take a number of years. The Group’s estimates for reported and unreported losses and establishing resulting provisions and related retakaful recoverables are continually reviewed and updated, and adjustments resulting from this review are reflected in the income statement. The process relies upon the basic assumption that past experience, adjusted for the effect of current developments and likely trends, is an appropriate basis for predicting future claims. Reserving risks are addressed by ensuring prudent and appropriate reserving for business written by the Group, thus ensuring that sufficient funds are available to cover future claims. Reserving practises for the General Takaful and Individual Family Takaful Portfolio involve the use of actuarial analysis from an independent actuary. 37
40. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 4 Risk management (continued) c) Financial risks The Group has exposure to the following primary risks from its use of financial instruments: · · · · Credit risk, Liquidity risk, Market risk, and Operational risk. i) Credit risk Credit risk is the risk that one party to a financial instrument will cause a financial loss to the other party by failing to discharge an obligation. A credit risk policy setting out the assessment and determination of what constitutes credit risk for the Group has been established and policies and procedures are in place to mitigate the Group’s exposure to credit risk. Compliance with the policy is monitored and exposures and breaches are regularly reviewed for pertinence and for changes in the risk environment. For all classes of financial assets held by the Group, other than those relating to retakaful contracts, the maximum credit risk exposure to the Group is the carrying value as disclosed in the consolidated financial statements at the consolidated financial position date. Retakaful is placed with reinsures and retakaful companies approved by the management, which are generally international companies that are rated by international rating agencies or other GCC companies. To minimise its exposure to significant losses from reinsurer and retakaful insolvencies, the Group evaluates the financial condition of its reinsures and retakaful companies and monitors concentrations of credit risk arising from similar geographic regions, activities or economic characteristics of the reinsures and retakaful companies. At each reporting date, management performs an assessment of creditworthiness of reinsures and retakaful companies updates the retakaful purchase strategy, ascertaining suitable allowance for impairment if required. The Group monitors concentrations of credit risk by sector and by geographic location. Credit risk is controlled through terms of trade for receipt of contributions. Most of the counterparties are takaful companies that are generally not rated. However, they are selected on their standing in the market, rating, relationship experience and length of association. All retakaful counterparties are rated. Exposure to credit risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the end of the reporting period was as follows: 2016 2015 AED’000 AED’000 Financial assets 11,761 21,476 Statutory deposits 410,148 604,352 Investments 4,598 Deposits with insurance and reinsurance companies 2,109 222,449 203,829 Contribution and takaful balance receivables 11,230 11,474 Amounts due from related parties 18,689 18,575 Other assets (excluding prepayments) 118,751 51,871 Cash at bank 795,137 916,175 Total 38
41. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 4 Risk management (continued) c) Financial risks (continued) ii) Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. Liquidity requirements are monitored on a daily basis and management ensures that sufficient funds are available to meet any commitments as they arise. Maturity profiles The table below summarizes the maturity profile of the financial liabilities of the Group based on remaining undiscounted contractual obligations. Repayments which are subject to notice are treated as if notices were to be given immediately. 31 December 2016 Carrying value Bank finance 3,983 Payable to Participants for unit-linked contracts 982,592 Takaful balance payable 227,887 Other payables 224,634 Total liabilities 1,439,096 31 December 2015 Carrying value Bank finance 4,676 Payable to Participants for unit-linked contracts 759,597 Takaful balance payable 120,742 Other payables 161,999 Total liabilities 1,047,014 Total Contractual cash flows Less than 180 days to 1-5 year 180 days 1 year AED ‘000 (3,983) (3,983) - (982,592) (227,887) (224,634) (1,439,096) Total (4,676) (36,457) (99,495) (139,935) (53,116) (67,768) (125,560) 39 No stated maturity - - - - - - (982,592) - (19,374) (1,063) (1,003,029) (18,219) (124,076) (142,295) (153,837) (153,837) Contractual cash flows Less than 180 days to 1-5 year Over 5 year 180 days 1 year AED ‘000 (4,676) - (759,597) (120,742) (161,999) (1,047,014) Over 5 year (11,671) (76,983) (88,654) (46,674) (46,674) - No stated maturity - - (759,597) - (9,281) (17,248) (786,126)
42. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 4 Risk management (continued) c) Financial risks (continued) iii) 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 Group limits market risk by maintaining a diversified portfolio and by continuous monitoring of developments in local equity and sukuk markets. In addition, the Group actively monitors the key factors that affect stock and sukuk market movements, including analysis of the operational and financial performance of investees. (a) Currency risk Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates and arises from financial instruments denominated in a foreign currency. The Company’s functional currency is the UAE Dirham. The significant financial assets and liabilities exposed to currency risk in equivalent thousand of Dirham are as under: 31 December 2016 Currency USD EGP CFA DZD Others 31 December 2015 Currency USD EGP CFA DZD Others Financial assets AED’000 226,050 145,071 18,835 222,872 121,558 Financial liabilities AED’000 (35,646) (57,751) (17,602) (130,633) (3,828) Net AED’000 190,404 87,320 1,233 92,239 117,730 Financial assets AED’000 370,259 265,963 18,838 186,693 114,247 Financial liabilities AED’000 (29,644) (127,433) (19,441) (80,449) (6,479) Net AED’000 340,615 138,530 (603) 106,244 107,768 40
43. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 4 Risk management (continued) c) Financial risks (continued) iii) Market risk (continued) (a) Currency risk (continued) Sensitivities The analysis below is performed for reasonably possible movements in foreign exchange rate with all other assumptions held constant showing the impact on net profit or equity. The sensitivities carried out for subsidiaries only as the impact of currency risk on the Company’s own assets and liabilities is considered insignificant. 31 December 2016 Profit or loss AED’000 Other comprehensive income AED’000 Financial assets +5% -5% - +36,719 -36,719 Financial liabilities +5% -5% - +12,273 -12,273 31 December 2015 (b) Change in exchange rates Change in exchange rates Profit or loss AED’000 Other comprehensive income AED’000 Financial assets +5% -5% - +47,800 -47,800 Financial liabilities +5% -5% - +13,172 -13,172 Profit rate risk Profit rate risk is the risk that the value or future cash flows of a financial instrument will fluctuate because of changes in market profit rates. The Group mainly placed financial instruments through islamic structures. The rates are contractually fixed and not exposed to any significant market risk. (c) Equity price risk Equity price risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from profit rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market. The Group’s equity price risk exposure relates to financial assets and financial liabilities whose values will fluctuate as a result of changes in market prices, principally investment securities not held for the account of unitlinked business. 41
44. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 4 Risk management (continued) c) Financial risks (continued) iii) Market risk (continued) (c) Equity price risk (continued) The Group’s price risk policy requires it to manage such risks by setting and monitoring objectives and constraints on investments, diversification plans, limits on investments in each country, sector and market and careful and planned use of derivative financial instruments. Sensitivities The analysis below is performed for reasonably possible movements in equity prices with all other assumptions held constant showing the impact on net profit or equity. 31 December 2016 Change in equity prices Profit or loss AED’000 Other comprehensive income AED’000 +10% -10% +5,717 -5,717 +8,248 -8,248 Change in equity prices Profit or loss AED’000 Other comprehensive income AED’000 +3,301 -3,301 +11,026 -11,026 31 December 2015 +10% -10% d) Operational risks Operational risk is the risk of loss arising from system failure, human error, fraud or external events. When controls fail to perform, operational risks can cause damage to reputation, have legal or regulatory implications or can lead to financial loss. The Group cannot expect to eliminate all operational risks, but by initiating a rigorous control framework and by monitoring and responding to potential risks, the Group is able to manage the risks. The Group has detailed systems and procedures manuals with effective segregation of duties, access controls, authorisation and reconciliation procedures, staff training and assessment processes etc. with a compliance and internal audit framework. Business risks such as changes in environment, technology and the industry are monitored through the Group’s strategic planning and budgeting process. 42
45. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 5 Acquisition of subsidiaries As stated in note 1, with effect from 1 January 2005, the Company acquired 82.21% share in Tariic. The operating results and financial position of Tariic for the year ended 31 December 2005 have been consolidated with the financial statements of the Company as at that date as the Group has control over the operating and financial policies of Tariic. The above acquisition resulted in recognition of Goodwill in statement of financial position amounting to AED 186.19 million. Subsequent to the above stated acquisition, the Company increased its holding in Tariic to 99.40% as at September 30, 2007 by further acquisitions of 4,080,465 shares. The net resultant discount of AED 2.62 million on these acquisitions was recognised directly in Company’s shareholder’s equity. In addition to the acquisitions in Tariic, the Company directly acquired shares in Best Re, subsidiary of Tariic. The goodwill amounting to AED 25.6 million was recognised in Company’s shareholder’s equity. After the acquisition, Tariic acquired further holding in Best Re and recognised AED 7.4 million discounts directly in Tariic’s shareholder’s equity. Consequently, the share of Company to the above discount of AED 7.0 million was recognised directly in shareholders’ equity. The management has allocated goodwill to each subsidiary on systematic basis. In the prior year, based on the decision of the Board of Directors of the Group to sell its investment in one of its subsidiary Best Re Holding (see note 41), the management has written off the remaining carrying value of goodwill amounting to AED 27.04 million attributable to subsidiary in full to profit or loss, being the difference between carrying value and recoverable amount. The management had earlier written off AED 34.4 million of goodwill in the year 2013. For the purpose of impairment testing, recoverable amount was based on fair value less cost of disposal using estimated discounted cash flows. The cash flow projections included specific estimates for five years and a terminal growth rate thereafter. The terminal growth rate was determined based on management's estimate of the long-term compound annual growth, consistent with the assumption that a market participant would note. The key assumptions described above may change as the economic and market conditions change. Management estimates that reasonably possible changes in these assumptions are not expected to cause the recoverable amount of goodwill to decline below the carrying amount. 43
46. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 6 Accounting classification of financial assets and financial liabilities The table below shows a reconciliation between line items in the statement of financial position and categories of financial instruments. At 31 December 2016 Financial assets Investments Investments in associates Statutory deposits Participants' investments in unit-linked contracts Deposits with takaful and retakaful companies Contributions and takaful balance receivables Amounts due from related parties Other assets and receivables Cash and bank balances Financial liabilities Bank finances Payable to Participants for unit-linked contracts Takaful balances payable Other payables Amounts due to related parties 44 FVTPL AED '000 Availablefor-sale investments AED '000 Amortised cost AED '000 Total carrying amount AED '000 57,174 - 82,483 - 293,220 94,736 11,761 432,877 94,736 11,761 989,369 - - 989,369 - - 2,109 2,109 1,046,543 82,483 222,449 11,230 18,689 118,830 773,024 222,449 11,230 18,689 118,830 1,902,050 - - 3,983 3,983 982,592 982,592 - 227,887 224,634 304 456,808 982,592 227,887 224,634 304 1,439,400
47. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 6 Accounting classification of financial assets and financial liabilities (continued) Available-forsale investments FVTPL AED '000 AED '000 At 31 December 2015 Financial assets Investments Investments in associates Statutory deposits Participants' investments in unit-linked contracts Deposits with takaful and retakaful companies Contributions and takaful balance receivables Amounts due from related parties Other assets and receivables Cash and bank balances Financial liabilities Bank finances Payable to Participants for unit-linked contracts Takaful balances payable Other payables 7 Amortised cost AED '000 Total carrying amount AED '000 33,009 - 110,260 - 479,880 87,548 21,476 623,149 87,548 21,476 766,687 - - 766,687 - - 4,598 4,598 799,696 110,260 203,829 11,474 18,575 52,603 879,983 203,829 11,474 18,575 52,603 1,789,939 - - 4,676 4,676 759,597 759,597 - 120,742 161,999 287,417 759,597 120,742 161,999 1,047,014 Fair value of financial instrument The fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments, the Group determines fair values using other valuation techniques. For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgement depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. The Group measures fair values using the following fair value hierarchy, which reflects the significance of the inputs used in making the measurements. Level 1: Quoted market price (unadjusted) in an active market for an identical instrument. Level 2: Inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques in which all significant inputs are directly or indirectly observable from market data. 45
48. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 7 Fair value of financial instrument (continued) Level 3: Inputs that are unobservable. This category includes all instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments for which significant unobservable adjustments or assumptions are required to reflect differences between the instruments. Valuation techniques include net present value and discounted cash flow models, comparison with similar instruments for which market observable prices exist. Assumptions and inputs used in valuation techniques include risk-free and benchmark interest rates, credit spreads and other premium used in estimating discount rates, bond and equity prices, foreign currency exchange rates, equity and equity index prices and expected price volatilities and correlations. The objective of valuation techniques is to arrive at a fair value measurement that reflects the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date. a) Fair value hierarchy of assets and liabilities measured at fair value The following table analyses assets and liabilities measured at fair value at the reporting date, by the level in the fair value hierarchy into which the fair value measurement is categorised. The amounts are based on the values recognised in the consolidated statement of financial position. As at 31 December 2016 Financial assets Level 1 AED '000 Level 2 AED '000 Level 3 AED '000 Total AED '000 22,721 12,515 - 35,236 21,938 44,659 989,369 1,001,884 - 989,369 21,938 1,046,543 506 506 81,692 285 81,977 - 81,692 791 82,483 Non-financial assets Investment properties - - 128,210 128,210 Financial liabilities Payable to Participants for unit-linked contracts - 982,592 - 982,592 Financial asset at fair value through profit or loss Mutual fund Participants' investments in unitlinked contracts Shares and securities Available for sale Mutual fund Shares and securities 46
49. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 7 Fair value of financial instrument (continued) a) Fair value hierarchy of assets and liabilities measured at fair value (continued) As at 31 December 2015 Financial assets Financial asset at fair value through profit or loss Mutual fund Participants' investments in unitlinked contracts Shares and securities Available for sale Mutual fund Shares and securities Level 1 AED '000 Level 2 AED '000 Level 3 AED '000 Total AED '000 15,765 3,234 - 18,999 14,010 29,775 766,687 769,921 - 766,687 14,010 799,696 4,358 4,358 105,473 429 105,902 - 105,473 4,787 110,260 - - 132,276 132,276 Non-financial assets Investment properties Financial liabilities Payable to Participants for unit-linked contracts - 759,597 - - 759,597 The following table shows a reconciliation from the beginning balances to the ending balances for fair value measurement in Level 3 of the fair value hierarchy: Balance at 1 January Purchases Sales Foreign exchange differences Fair value movement (refer note 15) Classified as held for sale Balance at 31 December 47 2016 AED’000 2015 AED’000 132,276 204 (9,497) 5,227 128,210 257,267 78,403 (79,983) (6,374) (1,263) (115,774) 132,276
50. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 7 Fair value of financial instrument (continued) b) Financial instruments not measured at fair value The following table sets out the fair values of financial instruments not measured at fair value and analyses them by the level in the fair value hierarchy into which each fair value measurement is categorised. As at 31 December 2016 Total carrying amount AED '000 11,761 Level 1 AED ‘000 - Level 2 AED ‘000 11,761 Level 3 AED ‘000 - Total fair value AED ‘000 11,761 - 2,109 - 2,109 2,109 - - 222,449 222,449 222,449 Amounts due from related parties - - 11,230 11,230 11,230 Other assets and receivables - 13,870 18,689 252,368 18,689 266,238 18,689 266,238 Bank finances - - 3,983 3,983 3,983 Takaful balances payable - - 227,887 227,887 227,887 Other payables - - 224,634 456,504 224,634 456,504 224,634 456,504 Level 1 AED ‘000 Level 2 AED ‘000 Level 3 AED ‘000 Total fair value AED ‘000 Total carrying amount AED '000 - 21,476 - 21,476 21,476 - 4,598 - 4,598 4,598 - 26,074 203,829 11,474 18,575 233,878 203,829 11,474 18,575 259,952 203,829 11,474 18,575 259,952 - - 4,676 120,742 161,999 287,417 4,676 120,742 161,999 287,417 4,676 120,742 161,999 287,417 Financial assets Statutory deposits Deposits with takaful and retakaful companies Contributions and takaful balance receivables Financial liabilities As at 31 December 2015 Financial assets Statutory deposits Deposits with takaful and retakaful companies Contributions and takaful balance receivables Amounts due from related parties Other assets and receivables Financial liabilities Bank finances Takaful balances payable Other payables a) In respect of those financial assets and financial liabilities measured at amortised cost, which are of short term nature (up to 1 year), management believes that carrying amount is equivalent to it's fair value. b) Fair value of deposits with banks are measured at their amortised cost, applying the rates that are offered for deposits of similar maturities and terms. The fair value of deposits payable on demand is considered to be the amount payable at the reporting date. 48
51. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 8 Allocation between participants and shareholders Consolidated statement of profit or loss For the year ended 31 December 2016 Noncontrolling interest Shareholders Participants Net underwriting income Income Wakalah share (note 9) Mudarib share (note 9) Net technical charges from/to shareholders to policyholders Net underwriting income from subsidiaries Income from investments (note 10) Other income Expenses General, administrative and other expenses Finance expenses Impairment on goodwill Net profit / (loss) before tax Tax – current Net profit / (loss) after tax Loss from discontinued operations Share of non-controlling interest Distribution to policyholders of Company Policyholders' loss financed by shareholders / recovery of loss from policyholders' funds (note 30) Net (loss) / profit AED’000 - For the year ended 31 December 2015 Total AED’000 (79,775) Shareholders Non -controlling interest AED’000 - Total AED’000 56,228 AED’000 - AED’000 (79,775) 82,339 15 (82,339) (15) - - 105,361 34 (105,361) (34) - - 4,240 40,948 49,733 44,959 222,234 (4,240) (40,948) 191 (207,126) - 49,924 44,959 15,108 8,458 60,514 18,598 24,104 217,069 (8,458) (60,514) 316 (117,823) - 18,914 24,104 99,246 (117,529) (796) 103,909 (15,165) 88,744 (41,374) (24,106) - (207,126) (207,126) (15,191) 24,106 - (117,529) (796) (103,217) (15,165) (118,382) (41,374) (15,191) (138,280) (992) (27,043) 50,754 (12,070) 38,684 (68,104) (8,708) - (117,823) (117,823) (15,597) 8,708 - (138,280) (992) (27,043) (67,069) (12,070) (79,139) (68,104) (15,597) (222,317) (199,053) 222,317 - 24,106 (174,947) (133,420) (171,548) 133,420 - 8,708 (162,840) 49 AED’000 - Participants AED’000 56,228 -
52. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 8 Allocation between participants and shareholders (continued) Consolidated statement of financial position 2016 AED’000 2015 AED’000 ASSETS Participants' assets Participants' investments in unit-linked contracts Contributions and takaful balance receivables Retakafuls’ share of outstanding claims Retakafuls’ share of unearned contributions Other assets and receivables Cash and bank balances Total participants' assets Total shareholders' assets * Total assets 989,369 147,392 135,013 45,632 6,476 13,104 1,336,986 2,053,044 3,390,030 766,687 136,742 81,429 51,802 3,257 1,039,917 2,319,272 3,359,189 LIABILITIES Participants' liabilities Outstanding claims and family takaful reserve Payable to Participants for unit-linked contracts Unearned contributions reserve Takaful balances payable Other payables and accruals Total participants' liabilities Total shareholders' liabilities * Total liabilities 290,840 982,592 76,081 109,314 88,658 1,547,485 1,075,686 2,623,171 262,386 759,597 128,007 70,012 51,164 1,271,166 1,054,570 2,325,736 766,859 1,033,453 710,584 56,275 766,859 959,307 74,146 1,033,453 NET ASSETS EMPLOYED FINANCED BY: Shareholders’ equity Non-controlling interest * Shareholders' assets and liabilities represents affairs of the subsidiaries as shareholder funds are used for the investments thereon. 50
53. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 9 Wakalah and Mudarib share The shareholders manage the takaful operations of the Group for the policyholders and charge 15% (2015: 15%) of gross written contributions of non family takaful business (excluding subsidiaries) as share. For family takaful business, sharing ratio is 15% (2015:15% ) of mortality costs. The shareholders of the Group also manage the policyholders’ investment funds other than family takaful and subsidiaries and charge 15% (2015: 15%) of investment income earned by the policyholders as Mudarib share. 10 Income from investments For the year ended 31 December 2016 Shareholders AED’000 Income from investments in Mudaraba and fund Realised profit on sale of investments Unrealised gain on investments Unrealised gain on investments properties (note 15) Income from bank deposits and loans and receivables Dividend income Share of profit from associates (note 11) Rental income (note 15) Policyholders AED’000 Total AED’000 3,593 9,714 11,607 5,227 - 3,593 9,714 11,607 5,227 8,871 2,243 8,181 297 49,733 191 191 9,062 2,243 8,181 297 49,924 For the year ended 31 December 2015 Shareholders AED’000 Income from investments in Mudaraba and IPO fund Realised profit on sale of investments Unrealised loss on investments Unrealised loss on investments properties (note 15) Income from bank deposits and loans and receivables Dividend income Share of loss from associates (note 11) Rental income (note 15) 3,213 (273) (10,922) (1,945) 24,741 976 2,396 412 18,598 51 Policyholders AED’000 316 316 Total AED’000 3,213 (273) (10,922) (1,945) 25,057 976 2,396 412 18,914
54. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 11 General, administrative and other expenses These include: Staff costs Rent, rates and service charges Repair and maintenance Travelling and conveyance Printing and stationery Licenses and other government expenses Depreciation Amortisation Marketing and advertising Legal and professional fees - Company Provision and impairment of receivables Exchange losses 12 2016 AED’000 2015 AED’000 74,539 7,223 3,280 555 2,528 1,143 3,816 505 4,057 3,489 1,341 14 76,706 7,462 1,982 603 1,989 1,145 4,779 604 13,599 3,261 8,633 289 Provision for charitable donations In accordance with Islamic Shari’ah requirements, certain profits earned by the subsidiaries have been reduced from income and transferred to a separate provision which are utilised for charitable donations. Movement in the provision recognised in the consolidated statement of financial position are as follows: Balance at 1 January Provided during the year Balance at 31 December (included in other payables and accruals) (note 27) 52 2016 AED’000 2015 AED’000 1,768 1,653 1,110 658 3,421 1,768
55. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 13 Property and equipments Land AED’000 Cost At 1 January 2015 Additions Revaluations Disposals Foreign exchange translation Transfer to held for sale At 31 December 2015 At 1 January 2016 Additions Foreign exchange translation Disposals Transfer to held for sale Reclassification At 31 December 2016 Depreciation At 1 January 2015 Charge for the year Revaluations On disposals Foreign exchange translation Transfer to held for sale At 31 December 2015 At 1 January 2016 Charge for the year On disposals Foreign exchange translation At 31 December 2016 Net book value At 31 December 2016 At 31 December 2015 14 6,160 4,902 (2,054) (419) 8,589 8,589 (321) 10,085 18,353 18,353 8,589 Furniture Building and fixtures AED’000 AED’000 Computer AED’000 Vehicles AED’000 Capital work in progress AED’000 259 2,793 (38) 3,014 3,014 491 (1,207) (881) 1,417 94,451 169 776 (10,835) (27,788) 56,773 56,773 169 (3,882) (10,085) 42,975 24,803 3,112 (572) (7,085) 20,258 20,258 1,499 (4,489) (3,021) 14,247 12,318 1,512 (49) (286) (2,157) 11,338 11,338 441 (1,654) (2,842) 7,283 3,443 202 (166) (57) (1,808) 1,614 1,614 750 (70) (79) 2,215 9,104 2,331 (4,150) 10 (1,362) (1,150) 4,783 4,783 1,458 (2,045) 4,196 19,174 1,959 (470) (6,052) 14,611 14,611 1,349 (2,831) (3,073) 10,056 11,354 389 (49) (268) (1,790) 9,636 9,636 573 (2,808) (1,458) 5,943 2,400 100 (282) (52) (780) 1,386 1,386 436 (79) (65) 1,678 38,779 51,990 4,191 5,647 1,340 1,702 537 228 32 32 32 32 1,385 2,982 Total AED’000 141,434 12,690 776 (2,269) (12,169) (38,876) 101,586 101,586 3,350 (11,623) (6,823) 86,490 42,064 4,779 (4,150) (321) (2,152) (9,772) 30,448 30,448 3,816 (5,718) (6,641) 21,905 64,585 71,138 Goodwill and intangibles Cost At 1 January 2015 Additions Effect of movements in exchange rates Transfers At 31 December 2015 At 1 January 2016 Additions Disposals Effect of movements in exchange rates At 31 December 2016 Accumulated amortisation and impairment losses At 1 January 2015 Charge for the year Impairment Effect of movements in exchange rates Transfers At 31 December 2015 At 1 January 2016 Charge for the year On disposals Effect of movements in exchange rates At 31 December 2016 Net book value At 31 December 2016 At 31 December 2015 Goodwill AED’000 Computer software AED’000 Total AED’000 186,194 186,194 186,194 186,194 19,428 876 (872) (9,384) 10,048 10,048 508 (707) (486) 9,363 205,622 876 (872) (9,384) 196,242 196,242 508 (707) (486) 195,557 34,398 27,043 61,441 61,441 (79) 61,362 15,954 604 (494) (8,457) 7,607 7,607 505 (673) (436) 7,003 50,352 604 27,043 (494) (8,457) 69,048 69,048 505 (673) (515) 68,365 124,832 124,753 2,360 2,441 127,192 127,194 Computer software licences acquired by the Group are capitalised on the basis of the costs incurred to acquire and bring into their internal use. For goodwill, refer note 5. 53
56. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 15 Investment properties Investment property portfolio of the Group represents land and building acquired by Group directly and through its controlled subsidiaries. Geographical representation of investment properties are as follows: 2016 AED’000 15,000 113,210 128,210 Within UAE Outside UAE 2015 AED’000 15,500 116,776 132,276 The rental income of properties amount to AED 0.3 million in 2016 (2015: AED 0.4 million ), there is no direct related expenses in respect of investment property. The Group investment property portfolio, is being managed and maintained by a third party administrative, and the rental income received from these properties are being set off with the administrative fees. Valuation of investment properties The fair value of investment property was determined by external, independent property valuers, having appropriate recognised professional qualifications and recent experience in the location and category of the property being valued. The independent valuers provide the fair value of the Group’s investment property portfolio annually. Valuation technique and significant unobservable inputs The following table shows the valuation technique used in measuring the fair value of investment properties, as well as the significant unobservable inputs used. The Company has taken the highest and best use fair values for the fair value measurement of its investment properties. Valuation technique Significant unobservable inputs 1) Income valuation approach 2) Sales comparative valuation approach 3) Market value approach -Expected market rental growth rate -Risk adjusted discount rates -Free hold property -Free of covenants , third party rights and obligations -Statutory and legal validity -Condition of the property -Sales value of comparable properties 54 Interrelationship between key unobservable inputs and fair value measurements The estimated fair value increase/decrease if: -Expected market rental growth rate were higher -The risk adjusted discount rates were lower / higher -The property is not free hold -The property is subject to any covenants, rights and obligations -The property is subject to any adverse legal notices / judgment -The property is subject to any defect / damages -The property is subject to sales value fluctuations of surrounding properties in the area.
57. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 15 Investment properties (continued) 2016 AED’000 2015 AED’000 132,276 204 5,227 (9,497) 128,210 257,267 78,403 (79,983) (1,263) (6,374) (115,774) 132,276 Movement in investment properties Balance at 1 January Acquired during the year Disposal during the year Fair value gain / (loss) (note 10) Foreign exchange differences Transfer to held-for-sale Balance at 31 December 16 Investment in associates The principal associates of the Group, all of which have 31 December as their year end are as follows: Ownership Country of 2016 2015 2014 incorporation Associates AED’000 Salama Cooperative Insurance Company (formerly Saudi IAIC) 30.00% 30.00% KSA 64,461 Islamic Insurance Jordan 20.00% 20.00% Jordan 30,275 94,736 Movements during the year Balance at 1 January Rights share issue in Salama Cooperative Insurance Company Share of profit from associates (note 10) Investment in GEPAR transferred to held-for-sale Dividend received Balance at 31 December 2015 AED’000 58,204 29,344 87,548 2016 AED’000 87,548 8,181 (993) 94,736 2015 AED’000 42,559 44,040 2,396 (516) (931) 87,548 2016 AED’000 897,750 (591,858) 515,474 30,481 2015 AED’000 669,459 (397,831) 419,514 11,061 Summarised financial information of the major associates is as under: Total assets Total liabilities Revenue Profit / (loss) 55
58. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 17 Statutory deposits Company Islamic Arab Insurance Co. (Salama) Egypt Saudi Insurance Home Salama Senegal Misr Emirates Takaful Life Insurance Co. 2016 AED’000 2015 AED’000 10,000 608 1,089 64 11,761 10,000 1,411 1,130 8,935 21,476 These statutory deposits are required to be placed by all insurance and takaful companies operating in respective countries mentioned above with the designated National Banks. Statutory deposits, which depend on the nature of takaful activities, cannot be withdrawn except with the prior approval of the regulatory authorities. 18 Investments 31 December 2016 Domestic International investments investments AED’000 AED’000 Financial asset at fair value through profit or loss Mutual fund and externally managed portfolios Shares and securities Available-for-sale investments Mutual fund and externally managed portfolio Shares and Securities Islamic placements (refer 18.1) Held to maturity SUKUK and Government bonds Other investments Total investments Total AED’000 31 December 2015 Domestic International investments investments AED’000 AED’000 Total AED’000 4,717 4,717 35,236 17,221 52,457 35,236 21,938 57,174 4,492 4,492 18,999 9,518 28,517 18,999 14,010 33,009 - 81,692 791 82,483 81,692 791 82,483 4,358 4,358 105,473 429 105,902 105,473 4,787 110,260 - 145,854 145,854 - 116,605 116,605 4,717 120,545 26,821 428,160 120,545 26,821 432,877 8,850 230,976 132,299 614,299 230,976 132,299 623,149 18.1 Represent Shari'ah compliant placements with different financial institutions having profit rates of 0.22% to 5% (2015: 0.22% to 5%) and maturing in more than three months when acquired. 18.2 During the year ended 31 December 2016, the Group purchased shares worth AED 14.3 million (2015: AED 10.4 million) which are classified as fair value through profit or loss and available for sale investments. 18.3 Participants' investments in unit-linked contracts Financial asset at fair value through profit or loss 56 2016 AED’000 2015 AED’000 989,369 766,687
59. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 19 Deposits with takaful and retakaful companies 2016 AED’000 154 1,955 2,109 Contributions deposits Claim deposits 2015 AED’000 327 4,271 4,598 As per the relevant local regulations, the ceding company retains a portion of unearned contributions and outstanding claims after net payments to the insurer. The deposits pertaining to Best Re have been reclassified to assets held for sale. 20 Contributions and takaful balance receivables Takaful contributions receivables Due from takaful and retakaful companies Provision for impairment losses Takaful contributions receivables Due from takaful and retakaful companies 2016 AED’000 2015 AED’000 91,436 150,835 242,271 102,149 124,866 227,015 (10,344) (9,478) 222,449 (13,964) (9,222) 203,829 Aging of contributions and takaful balance receivables Not yet due Past due over 0 to 60 days Past due over 60 to 120 days Past due over 120 to 180 days Past due over 180 days to 1 year Over 1 year Total contributions and takaful balance receivables Net contributions and takaful balance receivables 2016 Gross amount AED’000 10,824 57,567 33,648 22,905 39,959 77,368 242,271 222,449 Impairment AED’000 (19,822) (19,822) 2015 Gross amount AED’000 19,901 38,894 27,078 23,035 45,643 72,464 227,015 203,829 Impairment AED’000 (23,186) (23,186) Aging of contributions and takaful balance receivables Not yet due Past due over 0 to 60 days Past due over 60 to 120 days Past due over 120 to 180 days Past due over 180 days to 1 year Over 1 year Total contributions and takaful balance receivables Net contributions and takaful balance receivables 57
60. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 21 Other assets and receivables Deferred commission Prepaid commission Others 22 2016 AED’000 2015 AED’000 273,266 68,985 23,316 365,567 219,155 96,424 23,741 339,320 2016 AED’000 2015 AED’000 79 102,787 15,964 118,830 732 9,304 42,567 52,603 2016 AED’000 2015 AED’000 84,592 34,238 118,830 5,786 46,817 52,603 Cash and bank balances Cash in hand Cash at bank Term deposits (note 22.1) Cash and bank balances - by geographical distribution Domestic International 22.1 Term deposits carried profit ranging from 0.22% to 1.61% per annum (2015: 0.22% to 1.7% per annum) . 58
61. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 23 Outstanding claims and family takaful reserve 2016 AED’000 2015 AED’000 328,998 150,345 479,343 (157,023) 322,320 355,877 44,064 399,941 (116,243) 283,698 2016 Retakaful Adjustment AED’000 AED’000 Net AED’000 Reserve for outstanding claims Reserve for incurred but not reported claims Less: Retakafuls' share of outstanding claims Movements in outstanding claims reserve and family takaful reserve Gross AED’000 Balance at 1 January Foreign exchange differences Net movement during the year Balance at 31 December Balance at 1 January Foreign exchange differences Transferred to held for sale Net movement during the year Balance at 31 December 399,941 79,402 479,343 (116,243) (40,780) (157,023) (21,398) 21,398 - 283,698 (21,398) 60,020 322,320 Gross AED’000 2015 Retakaful Adjustment AED’000 AED’000 Net AED’000 682,626 (322,341) 39,656 399,941 (195,115) 50,558 28,314 (116,243) 487,511 (21,892) (271,783) 89,862 283,698 (21,892) 21,892 - Assumptions and sensitivities Process used to determine the assumptions The process used to determine the assumptions for calculating the outstanding claim reserve is intended to result in neutral estimates of the most likely or expected outcome. The sources of data used as inputs for the assumptions are reviewed annually. The nature of the business makes it very difficult to predict with certainty the likely outcome of any particular claim and the ultimate cost of notified claims. Each notified claim is assessed on a separate, case by case basis with due regard to the claim circumstances, information available from loss adjusters and historical evidence of the size of similar claims. Case estimates are reviewed regularly and are updated as and when new information arises. 59
62. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 23 Outstanding claims and family takaful reserve (continued) Process used to determine the assumptions (continued) The provisions are based on information currently available. However, the ultimate liabilities may vary as a result of subsequent developments or if catastrophic events occur. The impact of many of the items affecting the ultimate costs of the loss is difficult to estimate. The provision estimation difficulties also differ by class of business due to differences in the underlying takaful contract, claim complexity, the volume of claims and the individual severity of claims, determining the occurrence date of a claim, and reporting lags. IBNR provisions are initially estimated at a gross level and a separate calculation is carried out to estimate the size of retakaful recoveries. The method used by the Group takes into account historical data, past estimates and details of the retakaful programme, to assess the expected size of retakaful recoveries. IBNR reserves are estimated using a range of standard actuarial claim projection techniques, based on empirical data and current assumptions that may include a margin for adverse deviation as required by new regulations. Assumptions and sensitivities to changes in key variables The assumptions that have the greatest effect on the measurement of takaful contract provisions are the expected loss ratios for the most recent accident years for accident and liabilities. These are used for assessing the IBNR for the 2015 and 2016 accident years. Where variables are considered to be immaterial, no impact has been assessed for insignificant changes to these variables. Particular variables may not be considered material at present. However, should the materiality level of an individual variable change, assessment of changes to that variable in the future may be required. An analysis of sensitivity around various scenarios provides an indication of the adequacy of the Group’s estimation process. The Group believes that the liability for claims reported in the consolidated statement of financial position is adequate. However, it recognises that the process of estimation is based upon certain variables and assumptions which could differ when claims arise. 60
63. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 23 Outstanding claims and family takaful reserve (continued) Claims development The Group maintains adequate reserves in respect of its takaful business in order to protect against adverse future claims experience and developments. The uncertainties about the amount and timing of claim payments are normally resolved within one year. Takaful claims-gross Underwriting year (cumulative amounts) Development year 1 Development year 2 Development year 3 Development year 4 Development year 5 Current estimate of cumulative claims (A) Cumulative payments to date (B) Net (A-B) 2012 AED’000 94,288 170,658 178,259 187,674 201,143 2013 AED’000 115,433 167,617 196,050 194,434 - 2014 AED’000 151,986 278,277 323,537 - 2015 AED’000 233,192 586,275 - 2016 AED’000 285,467 - 201,143 194,434 323,537 586,275 285,467 1,590,856 (179,215) 21,928 (168,305) 26,129 (282,555) 40,982 (468,641) 117,634 (96,684) 188,783 (1,195,400) 395,456 Liability recognised in the consolidated statement of financial position as part of gross claim Reserve in respect of years prior to 2011 part of the gross claim Total reserve included in the consolidated statement of financial position as part of the gross claim (excluding family takaful reserve) 61 Total AED’000 - 395,456 8,987 404,443
64. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 23 Outstanding claims and family takaful reserve (continued) Claims development (continued) Takaful claims-net Underwriting year (cumulative amounts) Development year 1 Development year 2 Development year 3 Development year 4 Development year 5 Current estimate of cumulative claims (A) Cumulative payments to date (B) Net (A-B) 2012 AED’000 77,153 113,419 119,506 115,795 125,556 2013 AED’000 100,772 109,133 116,179 131,904 - 2014 AED’000 97,160 158,320 215,661 - 2015 AED’000 172,723 451,749 - 2016 AED’000 151,078 - 125,556 131,904 215,661 451,749 151,078 (112,646) 12,910 (117,162) 14,742 (188,837) 26,824 (374,924) 76,825 (39,211) 111,867 Liability recognised in the consolidated statement of financial position as part of net claim Reserve in respect of years prior to 2011 part of the net claim Total reserve included in the consolidated statement of financial position as part of the net claim (excluding family takaful reserve) Total AED’000 1,075,948 (832,780) 243,168 243,168 4,252 247,420 Sensitivities The general takaful claims provision is sensitive to the above key assumptions. The analysis below is performed for reasonably possible movements in key assumptions with all other assumptions held constant showing the impact on liabilities and net income. 31 December 2016 Current claims +10% -10% Impact on gross liabilities *Impact on net profit AED’000 AED’000 +47,934 -47,934 +32,232 -32,232 Impact on gross liabilities *Impact on net profit AED’000 AED’000 +38,834 -38,834 +27,210 -27,210 31 December 2015 Current claims +10% -10% * the impact on net profit is net of retakaful. 62
65. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 24 Unearned contribution reserve Movements in unearned contributions reserve: Balance at 1 January Foreign exchange differences Provision made during the year Provision released during the year Balance at 31 December Balance at 1 January Foreign exchange differences Provision made during the year Transfer to held for sale Provision released during the year Balance at 31 December 25 Gross AED’000 2016 Retakafuls' AED’000 235,808 158,846 (235,808) 158,846 (71,345) (70,796) 71,345 (70,796) Gross AED’000 2015 Retakafuls' AED’000 303,302 235,808 (81,248) (222,054) 235,808 (72,142) (71,345) 2,851 69,291 (71,345) Net AED’000 (33,425) 33,425 - 164,463 (33,425) 121,475 (164,463) 88,050 Adjustment AED’000 Net AED’000 (8,293) 8,293 - 231,160 (8,293) 172,758 (78,397) (152,763) 164,465 2016 AED’000 2015 AED’000 Takaful balances payable Takaful companies Retakaful companies 26 Adjustment AED’000 78,280 149,607 227,887 43,991 76,751 120,742 Payable to Participants for unit-linked contracts Balance at 1 January Amounts invested by Participants Refund during the year Net movement including redemption in fund 63 2016 AED’000 2015 AED’000 759,597 568,524 (16,827) (328,702) 982,592 661,334 499,367 (11,398) (389,706) 759,597
66. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 27 Other payables and accruals Payable to garages and brokers Provision for charitable donations Payable to suppliers Bonus & Incentive Payable Family Takaful Staff related accruals Accrued expenses Other provisions Taxes payable Surplus payable to policyholders Other payables 28 2016 AED’000 2015 AED’000 83,332 3,421 35,090 27,327 13,875 2,198 6,875 24,397 17,852 36,637 251,004 40,864 1,768 22,564 27,073 19,274 1,622 7,045 20,079 16,451 34,968 191,708 2016 AED’000 2015 AED’000 3,983 4,676 Bank finances Short-term portion 64
67. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 29 Related party transactions The Group, in the normal course of business, collects contributions, settles claims and enters into other transactions with other businesses that fall within the definition of related parties contained in the International Accounting Standard 24. The management believes that the terms of such transactions are not significantly different from those that could have been obtained from third parties. The following are the details of significant transactions with related parties. General and administrative expenses Retakaful on contributions Retakaful on claims Amounts due from related parties Bin Zayed Group Other entities under common management with the Group 2016 AED’000 2,620 - 2015 AED’000 2,671 1,815 84 2016 AED’000 2015 AED’000 10,928 302 11,230 11,128 346 11,474 Amounts due to related parties Other entities under common management with the Group (note 27) 304 - Compensation of key management personnel 7,072 543 7,615 Short term benefits Employees end of service benefits 30 8,503 369 8,872 Policyholders’ fund Balance at 1 January Net deficit attributable to policyholders for the year (note 8) Surplus distribution to policyholders of family takaful Financed by shareholders' 2016 AED’000 2015 AED’000 (231,827) (207,126) (15,191) (454,144) 454,144 - (98,407) (117,823) (15,597) (231,827) 231,827 - The shareholders of the Company financed the policyholders’ deficit in accordance with the takaful contracts between the Company and its Policyholders. 65
68. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 31 Share capital Authorised, issued and fully paid up capital 1,210,000,000 shares of AED 1 each (2015: 1,210,000,000 shares of AED 1 ) 32 2016 AED’000 2015 AED’000 1,210,000 1,210,000 Statutory reserve In accordance with Article 239 of the U.A.E. Federal Law No. (2) of 2015 and the Articles of Association of the Company require that 10% of the net profit be transferred to a non-distributable statutory reserve until this reserve equals 50% of the paid up share capital. This reserve is not available for distribution other than in circumstances stipulated by law. 33 Revaluation reserve The Group’s share on revaluation amounting to AED 0.4 million (2015: AED 2.4 million ) on land and building during the year has been debited to a non distributable reserve (refer note 3). 34 Treasury shares In 2012, the Company bought back 19,697,615 shares amounting to AED 35.97 million. The buyback of shares was duly approved by the Board of Directors. The treasury shares are debited as a separate category of shareholders’ equity at cost. 35 Earnings per share The calculation of earnings per share for the year ended 31 December 2016 is based on loss of AED 199.1 million (2015: loss of AED 171.5 million) divided by the weighted average number of shares of 1,188 million (2015: 1,188 million) outstanding during the year after taking into account the treasury shares held. There is no dilutive effect on basic earnings per share. 36 Taxation - current Taxation comprises of taxation of foreign operation, in view of the operations of the Group being subject to various tax jurisdictions and regulations, it is not practical to provide reconciliation between the accounting and taxable profits together with details with effective tax rates. 37 Contingent liabilities and capital commitments Letters of guarantee 2016 AED’000 2015 AED’000 12,027 11,873 Statutory deposits of AED 12.06 million (2015: AED 12.14 million ) are held as lien by the bank against the above guarantees. 66
69. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 37 Contingent liabilities and capital commitments (continued) The Group is exposed to certain claims and litigations, these are subject to legal cases filed by policyholders, cedants and retakaful operators in connection with policies issued. The management believes, based on independent legal counsel opinions that the ascertainment of liabilities and its timing is highly subjective and dependent on outcomes of court's decisions. Furthermore. as per independent legal counsel, the Group has strong grounds to defend the suits successfully. Accordingly, no additional provision for these claims has been made in the consolidated financial statements. However a provision is made in respect of each individual case where it is probable that the outcome would result in a loss to the Group in terms of an outflow of economic resources and a reliable estimate of the amount of outflow can be made. There are no significant capital commitments at 31 December 2016 (2015: nil). 38 Operating lease commitments The Group’s non-cancellable operating lease commitments are payable as follows: 2016 AED’000 Less than one year Between one to five years 1,957 93 2,050 67 2015 AED’000 2,104 2,104
70. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 39 Operating segment By business (for the year ended 31 December 2016) Gross written contributions Net contributions earned General takaful Family takaful Total AED’000 464,548 AED’000 313,064 AED’000 777,612 331,504 267,878 599,382 23,829 355,333 (443,587) (67,106) (155,360) 13,792 281,670 (32,153) (173,932) 75,585 37,621 637,003 (475,740) (241,038) (79,775) 94,883 (133,490) (15,191) (41,374) (174,947) General takaful AED’000 676,925 Family takaful AED’000 256,421 Total AED’000 933,346 478,960 220,894 699,854 39,369 518,329 (429,756) (111,744) (23,171) 13,576 234,470 (26,094) (128,977) 79,399 52,945 752,799 (455,850) (240,721) 56,228 43,018 (151,342) (27,043) (15,597) (68,104) (162,840) Commissions received on ceded reinsurance and retakaful Net claims incurred Commissions paid and other costs Net underwriting income Investment and other income Unallocated expenses and tax Distribution to policyholders of the Company Loss from discontinued operations Net loss after tax (for the year ended 31 December 2015) Gross written contributions Net contributions earned Commissions received on ceded reinsurance and retakaful Net claims incurred Commissions paid and other costs Net underwriting income Investment and other income Unallocated expenses and tax Impairment on goodwill Distribution to policyholders of the Company Profit from discontinued operations Net profit after tax 68
71. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 39 Operating segment (continued) By geography (for the year ended 31 December 2016) Africa AED’000 Asia AED’000 Total AED’000 Gross written contributions 264,235 513,377 777,612 Net contributions earned 214,703 384,679 599,382 10,499 225,202 (132,459) (51,795) 40,948 27,122 411,801 (343,281) (189,243) (120,723) 37,621 637,003 (475,740) (241,038) (79,775) 94,883 (133,490) (15,191) (41,374) (174,947) Africa AED’000 Asia AED’000 Total AED’000 Gross written contributions 286,145 647,201 933,346 Net contributions earned 236,422 463,432 699,854 11,625 248,047 (133,925) (53,608) 60,514 41,320 504,752 (321,925) (187,113) (4,286) 52,945 752,799 (455,850) (240,721) 56,228 43,018 (151,342) (27,043) (15,597) (68,104) (162,840) Commissions received on ceded reinsurance and retakaful Net claims incurred Commissions paid and other cost Net underwriting income Investment and other income Unallocated expenses and tax Distribution to policyholders of the Company Loss from discontinued operations Net loss after tax By Geography (for the year ended 31 December 2015) Commissions received on ceded reinsurance and retakaful Net claims incurred Commissions paid and other cost Net underwriting income Investment and other income Unallocated expenses and Tax Impairment on goodwill Distribution to policyholders of the Company Profit from discontinued operations Net profit after tax 69
72. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 39 Operating segment (continued) By business (for the year ended 31 December 2016) ASSETS Property and equipments General takaful AED’000 61,655 Family takaful AED’000 2,930 Total AED’000 64,585 Goodwill and intangibles 127,046 146 127,192 128,210 94,736 7,697 432,877 2,087 210,473 126,279 70,081 11,230 22,393 100,170 494,731 1,889,665 4,064 989,369 22 11,976 30,744 715 343,174 18,660 98,565 1,500,365 128,210 94,736 11,761 432,877 989,369 2,109 222,449 157,023 70,796 11,230 365,567 118,830 593,296 3,390,030 General takaful AED’000 3,983 Family takaful AED’000 - Total AED’000 3,983 370,284 109,059 479,343 154,767 141,252 163,521 2 431,180 1,264,989 624,676 982,592 4,079 86,635 87,483 302 88,032 1,358,182 142,183 982,592 158,846 227,887 251,004 304 519,212 2,623,171 766,859 Investment properties Investments in associates Statutory deposits Investments Participants' investments in unit-linked contracts Deposits with takaful and retakaful companies Contributions and takaful balance receivables Retakafuls’ share of outstanding claims Retakafuls’ share of unearned contributions Amounts due from related parties Other assets and receivables Cash and bank balances Assets held-for-sale TOTAL ASSETS LIABILITIES EXCLUDING POLICYHOLDERS’ FUND Bank finance Outstanding claims and family takaful reserve Payable to Participants for unit-linked contracts Unearned contributions reserve Takaful balances payable Other payables and accruals Amounts due to related parties Liabilities held-for-sale TOTAL LIABILITIES Policyholders’ fund NET ASSETS EMPLOYED FINANCED BY: Shareholders’ equity Non-controlling interest 710,584 56,275 766,859 70
73. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 39 Operating segment (continued) By business (for the year ended 31 December 2015) ASSETS Property and equipments General takaful AED’000 70,561 Family takaful AED’000 577 Total AED’000 71,138 Goodwill and intangibles 127,147 47 127,194 Investment properties Investments in associates Statutory deposits Investments Participants' investments in unit-linked contracts Deposits with takaful and retakaful companies Contributions and takaful balance receivables Retakafuls’ share of outstanding claims Retakafuls’ share of unearned contributions Amounts due from related parties Other assets and receivables Cash and bank balances Assets held-for-sale TOTAL ASSETS 132,276 87,548 17,476 623,149 4,598 192,718 100,485 4,000 766,687 11,111 15,758 70,483 11,474 22,446 38,660 703,688 862 316,874 13,943 26,621 2,202,709 1,156,480 132,276 87,548 21,476 623,149 766,687 4,598 203,829 116,243 71,345 11,474 339,320 52,603 730,309 3,359,189 General takaful AED’000 4,676 Family takaful AED’000 - Total AED’000 4,676 336,768 63,173 399,941 232,646 114,204 115,247 590,977 1,394,518 808,191 759,597 3,162 6,538 76,461 22,287 931,218 225,262 759,597 235,808 120,742 191,708 613,264 2,325,736 1,033,453 LIABILITIES EXCLUDING POLICYHOLDERS’ FUND Bank finance Outstanding claims and family takaful reserve Payable to Participants for unit-linked contracts Unearned contributions reserve Takaful balances payable Other payables and accruals Liabilities held-for-sale TOTAL LIABILITIES Policyholders’ fund NET ASSETS EMPLOYED FINANCED BY: Shareholders’ equity Non-controlling interest 959,307 74,146 1,033,453 71
74. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 40 Non-controlling interest The following table summaries the information relating to each of the Group's subsidiaries as at the reporting date, before any intra group eliminations:Salama Assurance Company-Senegal 2016 AED’000 41.55% 2015 AED’000 42.59% 18,607 10,225 (20,787) 3,343 18,728 12,966 (23,906) 3,317 Underwriting income (Loss) / profit Total comprehensive loss Loss allocated to non-controlling interest 4,411 (796) (1,042) (331) 5,879 481 (360) 205 Cash flows (used in) / generated from operating activities Cash flows generated from / (used in) investing activities Cash flows (used in) / generated from financing activities, before dividends to non-controlling interest Net decrease in cash and cash equivalents (3,219) 3,252 319 (462) (305) (272) 18 (125) 2016 AED’000 48.85% 2015 AED’000 48.85% Current assets Non-current assets Current liabilities Carrying amount of non-controlling interest 143,486 8,496 (83,478) 33,464 265,697 18,710 (188,091) 47,050 Underwriting income Profit Total comprehensive (loss) / income Profit allocated to non-controlling interest 7,479 51,163 (27,808) 24,993 22,196 15,319 7,230 7,483 Cash flows (used in) / generated from operating activities Cash flows (used in) / generated from investing activities Cash flows used in financing activities - cash dividends to NCI Net (decrease) / increase in cash and cash equivalents (11,986) (1,053) (13,039) 15,069 393 (2,756) 12,706 Non-controlling interest share Current assets Non-current assets Current liabilities Carrying amount of non-controlling interest Egypt Saudi Insurance Home Non-controlling interest share 72
75. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 41 Discontinued operations During 2015, the Board of Directors of the Group has approved to sell its investment in one of its subsidiary Best Re Holding. The management has allocated goodwill to each subsidiary on systematic basis that they consider appropriateness of carrying value of each business unit after assessing the external market conditions. The carrying value of goodwill attributable to subsidiary has been charged to profit or loss in full in prior year as a difference between carrying value and recoverable amount. Results from discontinued operations Revenue Expenses Results from operating activities Income tax Results from operating activities, net of tax Delinquencies relating to subsidiary Loss from discontinued operations, net of tax 2016 AED’000 2015 AED’000 12,012 (53,386) (41,374) (41,374) (41,374) 69,600 (132,199) (62,599) (62,599) (5,505) (68,104) 2016 AED’000 2015 AED’000 (58,889) 78,131 (2,797) 16,445 (227,169) 203,017 (15,517) (39,669) Cash flows from / (used in) discontinued operations Net cash used in operating activities Net cash from investing activities Net cash used in financing activities Net cash flows for the year 42 Disposal group held-for-sale Delinquencies relating to the disposal group An amount of AED nil (2015: AED 5,505) has been charged to profit or loss with respect to difference between carrying value and the recoverable amount of disposal group. 73
76. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 42 Disposal group held-for-sale (continued) Assets and liabilities of disposal group held-for-sale At 31 December 2016, the disposal group was stated at fair value less costs to sell and comprised the following assets and liabilities. 2016 AED’000 2015 AED’000 Property and equipment Intangible assets Investment property Investments in associates Statutory and investment deposits Investments Deposits with insurance and reinsurance companies Premiums and insurance balance receivables Reinsurers' share of outstanding claims Reinsurers' share of unearned premium Other assets Islamic placements Cash in hand and at bank Delinquencies relating to disposal group Assets held for sale 11,588 495 83,870 516 754 31,369 161,169 133,913 49,669 412 13,225 68,290 43,531 (5,505) 593,296 11,594 547 115,774 517 756 51,861 116,449 250,320 45,559 1,020 16,404 97,928 27,085 (5,505) 730,309 Liabilities against assets held for sale Gross outstanding claims Unearned premiums Insurance balance payable Other payables and accruals Bank loan ‐ long term portion Liabilities held for sale 125,333 54,372 207,551 7,082 124,874 519,212 176,674 55,039 250,166 3,717 127,668 613,264 74,084 117,045 Net assets Measurement of fair values i. Fair value hierarchy The non-recurring fair value measurement for the disposal group of AED 75,922 thousand before costs to sell of AED 1,838 thousand has been categorised as a Level 3 fair value based on the inputs to the valuation technique used. ii. Valuation technique The Group has done the individual assessment of each asset and liability based on the current situation. the expected recoverable amount of the assets and settlement amount of liabilities has been computed based on the most recent information available. 74
77. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 43 Capital risk management The Company’s objectives when managing capital are: • To comply with the capital requirements required by the UAE Federal Law No. (6) of 2007 regarding the Establishment of the Insurance Authority and Insurance Operations. • To safeguard the Company’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders; and • To provide an adequate return to shareholders by pricing takaful contracts commensurately with the level of risk. In UAE, the local takaful regulator specifies the minimum amount and type of capital that must be held by the Company in addition to its takaful liabilities. The minimum required capital (presented below) must be maintained at all times throughout the year. The company is subject to local takaful solvency regulations with which it has complied during the year. The company has incorporated in its policies and procedures the necessary tests to ensure continuous and full compliance with such regulations. The below summaries the minimum regulatory capital of the Company and the total held. 2016 AED’000 2015 AED’000 Minimum regulatory capital 100,000 100,000 Total shareholders' equity 710,584 959,307 The UAE Insurance Authority has issued a Resolution No. 42 for 2009 setting the minimum subscribed or paid up capital of AED 100 million for establishing takaful companies and AED 250 million for re-insurance companies. The resolution also stipulates that atleast 75 percent of the capital of the takaful companies established in the UAE should be owned by UAE or GCC national individuals or corporate bodies. The Company is in compliance with the minimum capital requirements. 44 Summary of technical provisions Gross reserves Reserve for outstanding claims (including IBNR) Family takaful reserves Unearned contribution Total As at 31 December 2016 General Family Total takaful takaful AED’000 AED’000 AED’000 404,443 370,284 34,159 74,900 74,900 158,846 154,767 4,079 525,051 113,138 638,189 Net reserves Reserve for outstanding claims (including IBNR) Family takaful reserves Unearned contribution Total As at 31 December 2016 General Family Total takaful takaful AED’000 AED’000 AED’000 247,420 244,005 3,415 74,900 74,900 88,050 84,686 3,364 328,691 81,679 410,370 75
78. Islamic Arab Insurance Co . (Salama) and its subsidiaries Notes (continued ) 44 Summary of technical provisions (continued) Gross reserves Reserve for outstanding claims (including IBNR) Family takaful reserves Unearned contribution Total As at 31 December 2015 General Family Total takaful takaful AED’000 AED’000 AED’000 354,397 336,768 17,629 45,544 45,544 235,808 232,646 3,162 569,414 66,335 635,749 Net reserves Reserve for outstanding claims (including IBNR) Family takaful reserves Unearned contribution Total As at 31 December 2015 General Family Total takaful takaful AED’000 AED’000 AED’000 238,154 236,283 1,871 45,544 45,544 164,463 162,163 2,300 398,446 49,715 448,161 The technical reserves above includes reserves of Company and its subsidiaries. Reserves that relates to UAE have been computed by a qualified independent actuary appointed by the Company, except for unearned contribution that relates to General Takaful, which has been computed using an internal model. Reserves that relates to subsidiaries have been computed with respect to applicable territorial regulatory requirements. 45 Comparative figures Certain comparatives have been reclassified / regrouped to conform to the presentation adopted in the consolidated financial statements. 76